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Tea & Tax Talk

Tax Filing Extensions: More Time to File, Not to Pay

The annual tax deadline can be an anxiety-inducing experience for many – it creeps around quickly and demands your undivided attention. Oftentimes, taxpayers find themselves needing more time and an extension often seems like the best solution, but if you aren’t careful, you could find yourself paying unexpected interest and penalties. While extensions grant you extra breathing room to prepare your tax return, they should never be confused with an extended grace period for paying your tax bill. In this blog post, we'll unravel the intricacies of tax filing extensions, focusing on the essential understanding that extensions provide you with more time for filing, but never an extended timeline for settling your tax obligations.

Understanding Tax Filing Extensions

Tax filing extensions are a lifeline for those who need more time to complete their tax return. Typically, the tax deadline for most individuals falls on April 15th. However, if you're unable to file your return by this date, you can request an automatic six-month extension, pushing your deadline to October 15th.

Here's the critical thing to remember: ***While the extension provides extra time to prepare your return, it doesn't grant additional time to pay any taxes you owe.***

The Importance of Paying on Time

April 15th is not just a deadline for filing; it's also the deadline for paying your taxes. Filing an extension helps you avoid the Federal failure-to-file penalty, which is charged on returns filed after the due date (April 15th) or extended due date (October 15th), absent a reasonable cause for filing late. The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won't exceed 25% of your unpaid taxes.

If you fail to pay the balance due by the April 15th due date, you'll be subject to interest on the outstanding amount. The interest accrues from April 15th until the balance is paid in full. Additionally, late payment can trigger penalties. The most common penalty is the Federal failure-to-pay penalty, which can be as much as 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty won’t exceed 25% of your unpaid taxes. These penalties can add up quickly, making it even more crucial to pay on time.

Calculating Federal Estimated Tax Payments

If you have income that isn't subject to tax withholding, such as self-employment income or investment earnings, or you are under-withholding, it's essential to make estimated tax payments throughout the year to avoid underpayment penalties. Estimated tax payments are often called “quarterly tax payments” but they aren’t due every quarter. The actual due dates are usually April 15, June 15, September 15, and January 15 of the following year.

Consequences of Not Making Estimated Tax Payments

Failure to make estimated tax payments when required can result in underpayment penalties. The penalty is typically assessed if your total payments (withheld taxes and estimated payments) for the year are less than the smaller of:

  • 90% of your current-year tax liability.

  • 100% of your previous year's tax liability (110% if your adjusted gross income exceeds a certain threshold).

The underpayment penalty can be substantial, and it's essential to keep up with your estimated tax payments to avoid it.

Tax filing extensions offer a welcomed reprieve for those who need more time to prepare their tax returns. However, it's crucial to remember that they don't extend the deadline for paying your taxes. Always strive to pay your tax balance by April 15th to minimize interest and penalties. Additionally, if you have income that's not subject to withholding, making timely federal estimated tax payments is vital to ensure compliance and financial peace of mind. Understanding these key aspects of the tax system will help you navigate the tax season more effectively and avoid potential financial pitfalls.


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