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6 secrets about the IRS tax extension

On Behalf of | Apr 14, 2016 | Back Taxes or Tax Debt |

It’s the 11th hour: income taxes are due Apr. 18. That’s just four days from the date we wrote this post.

People who have yet to file may be dreading having to spend the weekend filling out their tax return to avoid late penalties. But there is another option. The IRS lets taxpayers file for a six-month extension.

However, this extension is not quite like the pause button that it may sound like, as USA TODAY recently explained. Here are six things to keep in mind about tax extensions:

1. You must file the extension form by Apr. 18. This is known as Form 4868. Filing automatically gives you an additional six months to file your taxes.

2. The extension does not mean you don’t have to pay taxes in April. The IRS requires you to estimate your tax bill and pay at least part of that amount, if not all of it, along with your Form 4868 filing.

3. Paying your taxes this way might cost you more in the long run. For example, if your final tax bill turns out to be more than the estimate you made in April, the IRS will charge you interest on the difference. The latest interest rate is 3 percent, compounded daily.

4. Also, the IRS might charge you a late-payment penalty. Normally, this penalty is 0.5 percent per month on outstanding tax, up to 25 percent. The penalty is waived if you paid at least 90 percent of your taxes by Apr. 18.

5. Another possible penalty: if you miss the Oct. 17 deadline, the IRS can charge a late-filing penalty of 5 percent of the outstanding taxes per month, up to 25 percent of the amount due. But the IRS will accept “reasonable explanations” in writing and waive the penalty.

6. Some people can skip the extension request. U.S. citizens or residents out of the country for work get an automatic two-month extension, and deployed service members get automatic extensions too.

If you are dealing with a back tax bill from a prior year, the assistance of a tax attorney can make a big difference.