Though people tend to panic about getting their taxes done by April 15 each year, the Internal Revenue Service (IRS) is actually quite forgiving of late filers. What they require, though, is that you inform them by April 15 that you’ll be filing late. If you do that, you’ll automatically be granted an extension to October 15.
In order to get this extension, you’ll simply need to fill out and submit IRS Form 4868.
Let’s make an important distinction though. This form gives you an automatic six month extension to file. That’s not the same as saying the deadline for you to pay is extended six months.
When you submit Form 4868, you presumably won’t know how much, if anything, you owe in taxes, since you’re getting an extension precisely because you’re lacking something-time, information, documentation-needed to complete your taxes. But what you should do is at least estimate what that figure will be as best you can from the information you already do have. Because once you finally do file your taxes, you’ll be paying interest and penalties on anything owed that you did not pay by April 15.
So when you submit Form 4868, you’ll also submit payment (if you expect to owe any money). In fact it’s best to err on the side of sending a little too much, since you’re working from an estimate. Anything you overpay of course you’ll receive back once you do file your taxes by October 15.
On the other hand, if what you need is an extension to allow yourself more time to pay, rather than just more time to file, that’s considerably tougher to get. For that, you’ll need to submit IRS Form 1127. If approved by the IRS, this will give you up to 6 months extra to pay.
But unlike Form 4868, Form 1127 is far from automatic. Along with the form, you’ll need to provide thorough documentation of your assets and income to convince the IRS that it is impossible for you to pay them on time, or even to borrow the money.
Is it worth it to seek one or both of these types of extensions if otherwise you’ll be late with your taxes? Well, that depends on your situation. If it turns out you owe zero in taxes, or in fact are due a refund, then the IRS doesn’t punish you at all for being late. No reason for you to bother with the paperwork for an extension in that case.
But if you owe taxes, the penalties are as follows:
* The penalty for filing late is 5% of the tax owed for every month or partial month you are late, up to five months.
* The penalty for paying late is 0.5% (half a percent) of the tax owed for every month or partial month you are late, with a cap of 25%. You’ll also owe interest (currently set at a 4% interest rate, but this changes from quarter to quarter) on any money you are late paying.
So you can use that to judge whether it’s worth bothering with an extension. If you’ll owe about $20, I wouldn’t worry too much about 5% or 0.5% of that. If you expect to owe thousands of dollars, then you’ll almost certainly want to request an extension.
Don’t forget also, that if you’re filing for an extension on your federal taxes, you may need an extension for your state taxes as well. The rules on state tax extensions vary, so you’ll need to check with the government agency that handles tax collection in your state to find out more.