How Filing for a Tax Extension Works
Key Points – How Filing for a Tax Extension Works
- What Does It Mean to File a Tax Extension?
- The Big Misconception About Filing a Tax Extension
- The Deadline for Filing a Tax Extension
- How to File a Tax Extension?
- 5 Minutes to Read
What Does It Mean to File a Tax Extension?
Just three days before the deadline to file 2023 tax returns, the Internal Revenue Service projected that 19 million taxpayers would file for an automatic extension.1 With the April 15 deadline to file your 2024 taxes rapidly approaching, will you need to file for an extension? There can be a lot of confusion and fear about tax extensions, so let’s review how they work before Tax Day arrives.
April 15 Is the Deadline to File AND Pay Your 2024 Taxes
The deadline to file and pay taxes for U.S. taxpayers is April 15 each year, unless the 15th falls on a weekend or holiday. But what if you plan to file a tax extension? Doesn’t that mean you can file and pay your taxes after April 15? Not exactly.
Filing for a tax extension gives taxpayers until October 15 to file their return. However, filing for a tax extension doesn’t permit taxpayers more time to pay their taxes.2 The IRS requires taxpayers to estimate and pay their taxes by April 15. Potential penalties can ensue for those who aren’t compliant.
One strategy is to make a larger payment with your extension that would also cover your first quarter estimated payment. If you miss on the amount due for 2024, you should have enough to cover any additional amount due, avoiding additional penalties and interest. Any overpayment as a result the larger payment should be applied to the 2025 tax year.
Additionally, there’s also a misconception that filing an extension looks bad to the IRS. As long as you’re paying your estimated payment by April 15 and filing an extension, you are in no worse position than those who filed on April 15. One of our CPAs, Martin James, CPA, PFS, shared a few examples of why someone might consider filing a tax extension as a part of the Modern Wealth Management Educational Series.
“A perfect example is if someone has an installment sale and sells a piece of land on a contract, they have an option to pay all the taxes in one year or spread it out over the life of the contract. If you’re on an extension, you don’t have to make that decision until you file your return.” – Martin James, CPA, PFS
When Is the Deadline to File a Tax Extension and What Do You Need to File One?
If an individual taxpayer finds themselves in a situation where they think they need to file a tax extension, the request must be submitted by April 15. The form that individuals need to file to request for an automatic six-month extension to file their return is Form 4868.3 The extension can also be filed electronically by setting up an account at IRS.gov. However, there are certain exceptions for the following individuals:
If you’re a C-Corporation business owner and looking to request an extension for your business, you’ll need to file Form 7004.7 And if you’re a corporation owner who anticipates a net operating loss carryback, you’ll need to file Form 1138 to request an extension.8
E-Filing an Extension via IRS Free File
Regardless of income, taxpayers also have the option of utilizing IRS Free File to file an extension electronically.9 Still, you’re required to estimate and pay any taxes owed by April 15 if you plan to use IRS Free File to request an extension.
Pros and Cons of Filing for a Tax Extension
There is an obvious pro and an obvious con to filing for an extension. The obvious pro is that it allows you more time to file your return. There can be a variety of reasons why it can make sense to request an extension: illness, technical issues if you’re trying to file electronically, misplacing your return from the previous tax year, potential tax law changes, and waiting on information, etc.
That’s why it’s important to avoid waiting until the last minute to file your taxes. But there’s always the option of filing for an extension if those things do come up. If you do wait until the last minute, keep in mind that you’re not only potentially creating more financial stress for yourself. You’re also putting more pressure on whoever is preparing your taxes. That can lead to mistakes on your return and missed tax planning opportunities. Filing an extension can help ensure that your return is accurate.
The obvious con to filing an extension is that you’re prolonging the emotional toll that can coincide with filing your taxes. Just because you file an extension doesn’t mean that you’ll be able to get out of gathering your tax documents and other pertinent information needs to file your return. And again, you’re still required to pay your taxes by April 15, even if you request for an extension to file your return by October 15.
What If You Missed the April 15 Deadline to File an Extension?
If you didn’t file your return or an extension by April 15, that doesn’t mean that you should wait to complete Form 1040 or pay any taxes that are owed.10 Paying your taxes as soon as possible will help limit the amount you’ll owe to the IRS in penalties and interest.
According to the IRS, “interest will accrue on any unpaid tax from the due date of the return until the date of payment in full” if you miss the Tax Day deadline.11 For the first quarter of 2025, that interest rate on unpaid tax is 7%.12 That’s calculated by taking the federal short-term and adding 3%. On top of that, interest will compound each day.
Penalties, Penalties, Penalties
Along with paying interest on unpaid tax, there are potential penalties for both paying and filing after April 15. The “failure to file” penalty is 5% of the unpaid taxes for every month or partial month until you’ve paid your taxes in full.13 There are maximum and minimum failure-to-file penalties. The maximum penalty is 25%. If your return is 60-plus days late, there are two potential minimum penalties. It will be $510 (for 2024 returns filed in 2025) or 100% of the total tax you own—whichever is less.
There is also a “failure to pay” penalty.14 The penalty is 0.5% on late payments of any unpaid balance for each month or partial month. The failure to pay penalty also won’t exceed 25%. However, the 0.5% penalty increases to 1% after 10 days. If you receive notices from the IRS for failure to pay and failure to file penalties, the failure to file penalty would be 4.5% and the failure to pay penalty would be 0.5%.
The Main Takeaway
So, as you can see, the penalties and interest can add up in a hurry. The easiest way to avoid those is to pay and file your taxes prior to April 15. And if you’re unable to file by April 15, make sure to pay any taxes owed and request an extension to file your taxes. If you have any questions about how to file a tax extension or potential tax planning opportunities that might be available to you, start a conversation with our team below.
Do You Have a Forward-Looking Tax Plan?
Our CPAs and other tax professionals don’t strictly focus on tax compliance. They’re constantly looking for tax planning opportunities for our clients and prospective clients.
Whether you’ve already filed your 2024 tax return or plan to file an extension, it’s important to have a forward-looking tax plan that can potentially help you reduce tax burden over your lifetime rather than on a year-by-year basis. While the 2025 tax brackets have already been released, there is a lot of uncertainty about tax law beyond 2025.
Parts of the Tax Cuts and Jobs Act—including the current, lower tax rates—are scheduled to sunset after December 31, 2025.15 President Donald Trump aims to extend many of the TCJA provisions that he signed into law during his first term in office, but if they are extended, will they be permanent or temporary extensions?16 We want to make sure that you’re prepared either way by having a comprehensive financial plan that includes a forward-looking tax plan.
Resources Mentioned in This Article
- 2024 Tax Return Tips
- 2025 Financial Planning Calendar
- 5 Tax Filing Errors to Avoid
- Year-End Tax Planning for 2024
- Financial Stress: How Do You Deal with It?
- Tax Planning Tips with Corey Hulstein, CPA, and Martin James, CPA, PFS
- 5 Tax Planning Examples
- How Do I Pay Less Taxes?
- 2025 Tax Brackets: IRS Makes Inflation Adjustments
- Do I Need a CPA?
- What If We Go Back to Old Tax Rates?
- 5 Types of Financial Plans
Downloads
Other Sources
[2] https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return
[3] https://www.irs.gov/forms-pubs/about-form-4868
[4] https://www.irs.gov/publications/p54
[5] https://www.irs.gov/newsroom/extension-of-deadlines-combat-zone-service
[6] https://www.irs.gov/newsroom/tax-relief-in-disaster-situations
[7] https://www.irs.gov/forms-pubs/about-form-7004
[8] https://www.irs.gov/forms-pubs/about-form-1138
[9] https://www.irs.gov/irs-free-file-do-your-taxes-for-free
[10] https://www.irs.gov/forms-pubs/about-form-1040
[11] https://www.irs.gov/taxtopics/tc653#
[12] https://www.irs.gov/payments/quarterly-interest-rates#2023
[13] https://www.irs.gov/payments/failure-to-file-penalty
[14] https://www.irs.gov/payments/failure-to-pay-penalty
[15] https://taxfoundation.org/blog/tcja-expiring-means-for-you/
Investment advisory services offered through Modern Wealth Management, LLC, a Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management a Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.