How to File a Tax Extension

As most of us (if not all of us) know by now, filing tax returns on time is essential to avoiding penalties and additional fees. April 15th, the dreaded Tax Day, is the usual deadline. That is, unless April 15th falls on a weekend or a Holiday, in which your forms would be due on the following business day.

Coming off of a very unique and, most would say, challenging year, some of us may not be quite ready to file our tax returns. 2020 came with many surprises and the last thing we want to add to that list is a penalty from the IRS. Luckily, we all have the option to file a tax extension if we fear the current deadline. It’s fairly easy to file an extension but there are some important points to stay aware of. Here is what you need to know, in order to pull it off flawlessly.

How much extra time does a tax extension grant?

For an individual, the answer is 6 whole months. When you submit your request for an extension of time to file your tax returns, you will be assigned a new due date of October 15th (woo!). Same as the current deadline, if October 15th falls on a weekend or a Holiday, your due date will be the following business day.

For a nonprofit organization, you can choose either 3 months or 6 months.

How do you request a tax deadline extension?

For an individual filing a tax extension, the process includes submitting a single form to the IRS: Form 4868 “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. This form can be sent via mail or e-filed using an online service. As an individual, you will not have to wait for the IRS to approve your request. You will be granted an automatic extension of your tax deadline. It’s important to note that you MUST submit the form 4868 by the April 15th deadline, in order to get your extension without penalty.

For a nonprofit organization filing a tax extension, the proper form to use would be the IRS Form 8868 “Application for Extension of Time to File an Exempt Organization Return”. This form will request an automatic 3 month extension but can also be used to apply for an additional 3 month (non-automatic) extension – taking it up to a total 6 month extension. It is important to keep in mind that for nonprofit organizations, the IRS will want a “reasonable cause” for filing an extension. As 2020 was a crazy year, and many businesses/organizations were understaffed (especially those that are non-essential), it is safe to say that there is much reasonable cause floating around.

When do you have to pay your taxes?

It is very crucial to note that although filing a tax extension grants you extra time to turn in all your paperwork, it does not grant you extra time to pay your fees. If you owe the IRS money, you should still submit payments by the April 15th deadline. There is ONE little loophole here – as long as you pay 90% of your fees by the April deadline (and you filed a tax extension request on time) then you may pay your outstanding balance by the extended October 15th deadline. This will not result in any penalties or extra fees.

Either way, make sure you file your taxes by your deadline (whether April 15th or an extended deadline) in order to avoid a failure-to-file penalty fee. Even if you cannot afford to submit your payments in full by your filing deadline, don’t skip it. The failure-to-pay penalty is not as expensive as the failure-to-file penalty.

Happy Tax Season!!!