Tax Day, April 15, is the holiday that everyone loves to hate. As it turns out, there is no putting off your tax payment. You might be tempted to file for a tax extension, thinking it will grant you extra time to pay your due to Uncle Sam. That's not how tax extensions work. Or you may have already been granted an extension – the latest date to pay for individual extensions just passed on Oct. 15. If you missed that extension, prepare to face some stiff penalties.
According to Danny Glassman, a tax attorney with the Florida-based Gunster law firm, tax extensions grant you extra time to file your return. However, your tax payment is still due by April 15. Because tax returns that have been granted an extension won't be complete, he added, those who file for an extension must estimate what their tax payment will be and pay that amount instead.
"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 said. "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." [Looking for tax solutions for your business? Check out this related article: 12 Tax Solutions for Small Businesses]
Glassman noted that a tax extension is not meant as an opportunity to delay tax payment to the government, but rather as 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."
The deadline for corporations to request an extension is March 15. 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 apply 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 not to wait until the last second to request an extension. You can file for an extension with 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."