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Things to Consider With a Tax Extension

When it comes to filing yearly income tax returns, you find all types. There are those who are itching to file right after the New Year’s champagne toast, and those who trudge toward April 15 as if it were Armegeddon. And of course there are plenty of people who fall somewhere in between.

Because income can come from many different sources, and at all sorts of different levels, filing taxes is much more of a strain for some than others. Some may wind up with a quick and easy return, while others struggle to find the time, and sometimes the money to meet the deadline.

For those who see April 15 approaching a little too quickly, there is the option of filing the IRS form 4868 to get an extension. By filing an extension, taxpayers have an additional six months to file their taxes. But although there may be extra time, there may also be an extra expense. An extension allows a tax payer extra time to file, but not extra time to pay. If you are one of those who has to pay into the IRS or your state’s revenue department, holding off could mean that you’ll have to pay more. With an extension there is more time to file, but not more time to pay.

In order to limit fees, penalties, and interest taxpayers are best off paying their taxes at the time that they file for the extension. This can be tricky for some who don’t necessarily know what they owe. In order to make the process a bit easier, your tax accountant can estimate what you might owe. While not guaranteed to be accurate, these estimates will give you a place to start when it comes to knowing your tax bill.

If paying the whole amount is not feasible, pay what you can. Any penalties and interest will be calculated based on what you owe after April 15. If you’re due a refund, you won’t be charged penalties or interest. The following situations can make your tax obligation creep upwards: failing to file on time (your 4868 should take care of this), failing to pay, and Interest.

Failing to file can bring you a penalty of as much as 25% of your tax bill. For each month your return is late, 5% is added to your tax bill. This maxes out at 25%. The failure to pay penalty is less per month — only .5%, however this does not max out so delaying that payment too long could really add up. Interest charges can vary somewhat, but is currently around 4% of the amount that was underpaid.

If you’re feeling rushed or overwhelmed, knowing that there is an option to file an extension can bring some peace of mind, but still even with that extension it is always in the taxpayers best interest to get their taxes in order as soon as they can.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal..

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