What to Do After You File a Tax Extension
Now that you have filed or efiled a tax extension, you have met your filing requirements (until October 15), but NOT your payment obligations if you owe taxes.
What if your tax extension was rejected?
If you owe taxes, paying late will not pay off, even if you have an accepted extension. IRS penalties and interest will still accrue, based on the amount you owe.
How Do I Know if Late Penalties Apply to Me?
Whether you filed a tax extension because you weren't ready to file a tax return, or because you weren't able to pay your taxes, the steps below will guide you through what to do next.
Step 1: Get Ready to File Your Return
Did you get an extension because you couldn't pay your taxes? Then move on to Steps 2 and 3, below.
Did you get an extension because you did not have all the documents you needed to prepare a return? If so, you should contact any employers and other entities that owe you information. If you don't owe taxes, then you won't face penalties until after October 15. If you do owe taxes, interest and penalties will add up until you pay your balance due. Step 3 will show you your payment options.
Step 2: efile Your Tax Return
Prepare your return on efile.com and take 50% off your preparation fees between now and October 15, 2014. Just use the following promo code during checkout: 14extn
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Step 3: Pay Your Taxes or Set up Tax Payments
You should be aware that a tax extension only extends your filing deadline; it does not extend your time to pay. To avoid late payment penalties, you should pay your balance due or set up an alternate arrangement.
You have a few options when it comes to paying your balance due to the IRS, depending on whether or not you have the funds available.
If You Have the Funds to Pay Your Taxes
- Direct Bank Transfer: You can make a quick online payment directly from your bank account when you are preparing your tax return online.
- Mail a Check or Money Order: If you efiled, a payment voucher will be generated with your return. You can use this to pay with a check our money order.
- Credit or Debit Card: Pay online with your credit card or debit card. Note that here is a "convenience" fee based on the amount you pay.
If You DON'T Have the Funds to Pay Your Taxes
- Short-Term Extension of Time to Pay: If you will be able to pay your balance due within 120 days, you can call the IRS to see if you can qualify for a short-term extension of time to pay. If you are approved, you will still accrue interest on your balance, but you will avoid penalties, as well as the application fee for an installment agreement.
Installment Plan: If you owe no more than $50,000, you may qualify for an installment agreement with the IRS. There is a non-refundable $105 fee to apply, and you will still owe interest, but you will avoid IRS penalties for late payment.
Offer-in-Compromise: This is really your last resort and is not an option for most taxpayers. It is an offer to pay off your tax debt for lower than the amount you owe. The IRS will only ever approve this if they believe that they will never be able to obtain the full amount from you, because of your financial circumstances.
See more details about the above tax payment options.
What if My Extension Was Rejected?
You can make any corrections and re-efile your extension (at no extra charge) until April 15, 2014 (Tax Day). After that date, the IRS will no longer accept extensions (even if they were rejected on April 15).
If the IRS did not accept your extension by April 15, 2014, it is imperative that you efile or file your tax return as soon as possible. You should do this even if you can't yet afford to pay the taxes you owe.
The penalty for paying late is 0.5% of your balance due (per month), but the penalty for filing late is much worse: 5% of your balance due. So, you should file a return ASAP to avoid late filing penalties, even if you cannot yet pay any taxes you may owe. See Step 2.
If you don't owe taxes, there are no penalties for filing late. This is because penalties are a percentage of the amount you owe. But the later you file, the later you will get any refund you have coming.
If you owe taxes, penalties and interest will begin to accrue after April 15. The worst penalties are for filing late, so you should go ahead and file your tax return now, even if you can't afford to pay what you owe. After you file or efile your return, you can set up a payment plan with the IRS to avoid late payment penalties. See Step 3.