Keep these last minute tax tips in mind when considering an extension

Are you thinking of filing an extension? An extension gives extra time for filing your taxes only, not for paying any balance due! Many people think that an extension gives you more time to pay your taxes however that myth is incorrect!

Interest will apply to any tax not paid by the April 17th deadline, plus a late payment penalty if less than 90 percent of the total tax is paid on time. The interest rate, which may be adjusted each calendar quarter, is currently five percent per year, and it’s compounded daily.

The penalty for failing to file on time is five percent per month of the balance owed. If a taxpayer files more than 60 days late, the minimum penalty is $100 or the balance due, whichever is less. The penalty for paying late is 0.5 percent per month of the balance owed. This rate is cut in half and drops to 0.25 percent per month for an individual who files on time and enters into an installment agreement with the IRS to pay the balance owed.

These penalties only apply to tax returns with taxes due. There is no late filing penalty on a refund return. The government will pay you interest on your refund for late returns but a taxpayer who fails to claim a refund within three years of the filing deadline generally loses the right to that refund. And always keep in mind that you still should complete your taxes as soon as you can since you may owe taxes rather than have a refund due you.

What’s important is that if you must file your taxes late try to pay what you think that you would owe with the extension. If you are unable to pay the tax bill, at least you should file your tax return on time and save the additional “failure to file penalty”.  

There is a special toll-free number for requesting an IRS extension by phone - call 1-888-796-1074.