Still working on your 2022 taxes? TD Ameritrade can help you understand how to file a tax extension, the tax extension deadline, and how long a tax extension is good for.
The April tax deadline is quickly approaching. And although many people have already completed their 2022 tax returns, many others haven’t. If you fall in the latter group for whatever reason, you may be wondering if it’s time to file a tax extension.
If you file a tax extension, you’ll have until mid-October instead of the mid-April deadline to complete your return. That sounds pretty good, right? Who wouldn’t want to delay paying any taxes they owe for an extra six months? But as it turns out, the IRS still expects its money by the original deadline. Even if you file a tax extension using Form 4868, you’ll still have to pay the amount you believe you owe by the April tax deadline. If you don’t, you’ll suffer the wrath of a 0.5% penalty per month until the taxes are paid. The penalty increases to 1% per month if you don’t pay your taxes within 10 days of receiving an IRS notice to levy property.
If you fail to file your tax return by either the original April deadline or the October tax extension date, an additional penalty kicks in, pushing the penalty to 5% with a maximum of 25%. Plus, you’ll be charged interest for the amount you owe on your taxes.
It all seems like a lot of bad news, right? Yes, it is. But the good news is that you can automatically get approved for a tax extension when you file Form 4868, or by making your estimated tax payment by debit card prior to the April tax deadline. Everyone’s taxes differ, naturally, so you might want to consider discussing these options with your tax-planning professional to help ensure you make the right decision for your specific circumstance.
Procrastination. Dragging your feet may be one motivation for filing a tax extension, but there are other, more practical reasons. Filing an extension and not paying is still less costly than not getting an extension and not paying by the April tax deadline. In fact, it’s 10 times less costly—there’s a 5% penalty if you miss the filing deadline versus 0.5% if you get an extension.
Expecting a refund? You may want to consider an extension if you’re certain you’ll get a big refund, but you don’t have the time to pull everything together by April. It’s better to get your full refund later on than rush and miss out on some potential deductions, if only you had taken the time to be extra thorough. The 0.5% penalty isn’t assessed for late refunds because that only applies to on-time late payments due to the IRS. In other words, they don’t charge you for the privilege of hanging on to your money for a few months, but if you owe the IRS money, you’re penalized for not sending it in on time.
Life circumstances. If you’re experiencing a life-changing event, such as military service, a natural disaster, or the birth of a child, you may want to consider filing a tax extension. Some extra time could enable you to focus on what’s important now and get your taxes filed later, when your circumstances have likely settled.
Awaiting forms or other info. Perhaps you need an extension because you don’t have all the forms necessary to complete your taxes—another common reason. To avoid those penalties, though, pay what you believe you owe the April tax deadline, even if you don’t have all the information required to be precise.
In short, life happens, and it may leave you unprepared to complete your tax return by the deadline. Tax extensions exist for a reason. Just make sure you pay your best estimate by the April tax deadline to potentially avoid tax penalties. And of course, try not to procrastinate. If worst comes to worst and you can’t pay on time, it’s always better to file your return and send your payment as soon as you’re able.
TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.
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