If you plan to file for a federal tax extension in hopes of putting off your payment to Uncle Sam, think again. Although an income-tax extension does give individuals and businesses a few more months to get their returns filed, it doesn't delay the payment deadline, said Danny Glassman, a tax attorney with the Florida-based Gunster law firm.
Just like those who don't file for an extension, if there is a tax that is due, it must be paid by April 15, Glassman said. But because the returns won't be complete, those who file for an extension must estimate what they expect their tax payment will be and pay that amount, he added.
"You should have some idea of what your overall income and expenses were, and you are required to estimate what your tax liability is," Glassman told Business News Daily. "If you either don't make that kind of good-faith estimate, or are very far off, you could be subject to a penalty for failing to pay." [11 Tax Solutions for Small Businesses]
Glassman noted that a tax extension is not meant as an opportunity to delay payment to the government, but rather a way to give people more time to get their paperwork in order.
"A lot of times, businesses don't always have the ability to get all of their accounting done and all of the information into a format where the return can be filed," he said. "So, the law allows you to file for an extension."
While the deadline for corporations to request an extension (March15) has already passed, individuals and businesses that are formed as a partnership still have until April 15 to request an extension.
Glassman said that if the extension request is granted — and nearly all of them are — individuals are given an extra six months, until Oct. 15, and partnerships have an additional five months, until Sept. 15, to file their tax returns.
"You will likely get a response from the IRS, so if you don't get that response in three to four weeks, then you might want to follow up," Glassman said. "But if you have proof that you mailed the extension request timely, then you ultimately should receive the extension."
Those who overestimate their payment can either get that amount refunded or have it be applied to next year's taxes, Glassman said.
The key to filing for an extension is to meet the April 15 deadline. Those who don't file for the extension and don't file and pay their taxes on time face stiff penalties, Glassman said.
According to the IRS, the penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late, up to 25 percent. In addition, those who don't pay their taxes on time face a penalty of 0.5 percent of their unpaid taxes for each month after the due date, also up to 25 percent.
S corporations and partnerships, which aren't taxed by the federal government because their shareholders pay individual income taxes on any profits they receive, are penalized $195 per partner or shareholder per month, for up to 12 months, for not filing on time.
"The penalties are significant," Glassman said.He advised those who know they will need some more time to not wait until the last second to request an extension. You can file for an extension via IRS Form 4868 or the IRS e-file process.
"It is a relatively simple process, but it is important that you follow the proper procedure," Glassman said "There is no real remedy if you don't do it properly."
Originally published on Business News Daily.