Common Tax Extension Misconceptions

When that April 15^th tax deadline is near there are many people who feel a sickening panic in their stomachs as they know they are going to owe some money to Uncle Sam. Many of these same people figure that they will simply file a tax extension and that they will then be given more time to fend off the tax collector, but this is not so. While a tax extension is a great tool for you to be able to use, you do have to know how to properly use it.

First and foremost, a tax extension is an extension of time and not an extension of payment. So, if you know that you will owe money, then you should try to pay it as the IRS wants that money by April 15^th. What you need to do while filling out your request for extension is try to estimate what you think you might owe. In this case, you should actually go higher, not lower. Why? Interest and penalties.

If you send in say, $500, and you actually owe $1000, then there will be a balance of $500 owed to the IRS. While it is true that you will have until October 15^th in order to fill out your tax forms and file them, what isn't true is that you will only owe an additional $500. Along with the $500 balance due, you will also be hit with interest and penalties for those six months making what you owe to Uncle Sam a lot more than $500.

If however, you send in $1100 and only owe $1000, then you will actually get a return of $100. Of course, you won't get and interest or penalties on that $100 from the IRS, but you will get it back.

You should also keep in mind that the extension that you file is simply a request for an extension and the IRS has the right to deny your request. While it is rare, there are cases where a denial occurs, so you should be prepared for that just in case.

Lastly, you need to be sure that your tax extension request is filed no later than your taxes should have been, so April 15^th. The easiest way to do this is to go to IRS.gov and download the PDF file 4868, fill it out and make sure it is postmarked on or before April 15^th.

Tax extensions can help you out in a great way, especially if you simply need more time to get your paperwork together. However, you do have to remember that you are only getting more time to file and not to pay.

Source: IRS, Tax Topics - Topic 304 Extensions of Time to File Your Tax Return, IRS.gov