Even though tax returns are officially due on April 17th, 2018, if you need more time you can file an extension. Here’s how an extension works:
If you usually receive a refund, filing an extension is particularly easy. To file an extension, W2(s), Schedule C business income & expenses (if applicable), and mortgage interest statements are needed to ensure accuracy. If a refund is expected, you will not need to make any estimated tax payments and you then have until October 15th to file the return.
If you usually owe or suspect you may owe this year, you may still file an extension but you will need to pay the anticipated amount due by the normal deadline. An extension only extends the time to file a return, not to pay taxes. If your extension payment is less than the actual tax due but at least 90%, interest will only accrue on the remaining balance. Interest is about 4% (annual) of the balance due and usually a relatively small amount. For example, there is a $500 balance due on an extended return and at least 90% of the total tax due was paid by April 17th. The return is filed in June (3 months after the deadline). The interest due is approximately $4 ($500*4% = $15 divided by 12 months = $1.25 multiplied by 3 months).
If your extension payment is less that the actual tax due and it is NOT at least 90% of the actual tax due, interest and late payment penalty will be due on the balance. Combined it’s about 10% (annual) of the balance due. For example, there is a $1,500 balance on an extended return and at least 90% of the total tax due was NOT paid by April 17th. The return is filed in June (3 months after the deadline). The interest & penalties due are approximately $40 ($1,500*10% = $150 divided by 12 months = $12.50 multiplied by 3 months).
If the extension payment is more than the tax due, the IRS issues a refund about 2 weeks after the return is filed. Similar to paying at least 90% of the tax or getting a refund, no interest will accrue.
If you anticipate owing on your return, take a look at some of the larger factors on your return such as W2s, Schedule C business income, and 1098 mortgage interest and real estate taxes. The more info you or your CPA can factor into your estimated payments, the more accurate the extension will be.
Filing an extension is relatively easy although we still recommend you consult your CPA to avoid unnecessary interest charges.