If you’re unable to file your taxes by this year’s May 17 deadline, the Internal Revenue Service (IRS) allows taxpayers to file for an extension. An extension allows individuals and businesses six additional months to file their return.
However, just because the IRS allows you to file your taxes up to six months later, this does not grant you additional time to pay your taxes. For example, if you anticipate you’ll owe the IRS $5,000, you’ll still need to pay what you owe by the May 17 deadline. Failing to pay your taxes on time could lead to possible penalties.
Additionally, individuals who want to file for an extension must do so on or before May 17. If you miss the deadline and you file late and you owe federal taxes, you could be subject to a late-filing penalty. Late filing penalties are calculated at a rate of 5% of the amount you owe the IRS, and the penalty is calculated every month. For example, if you owe the IRS $5,000 and you file three months late, your late filing penalty will be $750. ($5,000 x 0.5) x 3 = $750.
On the other hand, if you’re expecting a refund (as roughly 75% of taxpayers get each year), there is no late filing penalty. However, filing late essentially means you’re giving the IRS a non-interest-bearing loan. You won’t get your refund until you file—so you’ll want to file as soon as possible.
What if I owe the IRS money and I can’t pay?
Again, filing for an extension grants you additional time to pay your taxes, but it doesn’t grant you additional time to pay money that you owe. If you’re unable to pay in full, on time, you can contact the IRS about setting up an installment agreement. Although an installment agreement will allow you to pay what you owe over an extended period of time- you’ll want to remember that interest and penalty charges will continue accrue until your balance is paid in full.
Have questions? Call Hughes, Snell & Co., PA today
If you need help filing your 2020 taxes and you think you might need to file for an extension, we can help. Call the experts at Hughes, Snell & Co., PA today to learn more about how tax extensions work, how IRS installment agreements work, and working with a CPA can help ensure your taxes are filed properly.