October 15th is almost upon us. Yes, the end of tax season is near (or extension season).
What Does an Extension Do?
An extension provides an extra amount of time for you, a taxpayer, to file your taxes. It does not, however, provide more time to pay taxes owed to the IRS. That’s right, the IRS wants you to pay at least 90 percent of your tax bill by April 15th.
So, if you need an extension you also need to calculate an estimated tax payment (if you are going to owe). If you overpay with your estimated payment, you will get that money back when your return is filed.
What Happens if You Don’t Pay by the April Deadline?
The IRS then hits you with a penalty of 0.5 percent per month (which caps when it hits 25 percent). The penalty is calculated based on the unpaid amount of a tax bill.
What Happens if You Don’t File by the October Deadline?
You face an even high penalty at 5 percent per month (which also caps at 25 percent) based on your unpaid tax bill.
If you find that you cannot pay your tax bill, the IRS offers payment plans.
Learn more about extensions from Aimee Picchi.
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