If you are a business owner who needs to file an extension on your federal tax returns, you may be wondering what steps you need to take and what consequences you may face. Filing an extension can give you more time to prepare your tax documents and avoid penalties for late filing, but it does not extend the deadline for paying any taxes you owe. Here are some tips on how to file an extension and what to consider before doing so.
– How to file an extension: The easiest way to file an extension is to use the IRS Free File program, which allows you to electronically request an automatic six-month extension using Form 4868. You can also mail a paper Form 4868 to the IRS, but make sure to do so by the original due date of your return. If you expect to owe any taxes, you should pay as much as you can when you file the extension request, either online or by check. This will reduce the interest and penalties that will accrue on your unpaid balance.
– Why you may need an extension: There are many reasons why you may need more time to file your tax return, such as missing or incorrect information, complex tax situations, unexpected life events, or simply being busy with running your business. Filing an extension can help you avoid rushing through your return and making errors that could result in audits or additional taxes. It can also give you more time to consult with a tax professional or gather supporting documents for deductions and credits.
– What to watch out for: Filing an extension does not mean that you can postpone paying your taxes. If you owe any taxes, they are still due by the original deadline of your return, usually April 15. If you fail to pay at least 90% of your tax liability by that date, you will be subject to a late payment penalty of 0.5% per month on the unpaid amount, up to a maximum of 25%. You will also have to pay interest on the unpaid balance, which is currently 3% per year compounded daily. Therefore, it is advisable to estimate your tax liability and pay as much as possible when you file the extension request. You can use the IRS Tax Withholding Estimator or Form 1040-ES to help you with this calculation.
Filing an extension on your federal tax returns can be a useful option if you need more time to prepare your tax documents and avoid penalties for late filing. However, it does not relieve you from paying your taxes by the original deadline. Therefore, you should file an extension only if necessary and pay as much as possible when you do so. This will help you minimize the interest and penalties that may accrue on your unpaid balance and ensure that you comply with your tax obligations.
The Kentucky SBDC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.