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The Oft Times Misunderstood Income Tax Extension

I am sure that every accountant has heard the words “put my tax return on extension” upon advising a client that they owe a balance due.

What we find is that most everyone believes that by filing an income tax extension, form 4868 for individuals, there will be additional time to pay that balance due however, that is not the case. Filing an extension form by the due date of the tax return simply prevents a late filing penalty if in fact, the return is subsequently filed by the due date of the extension. An extension form does not prevent a late payment penalty nor does it prevent interest charges on a balance due. In order to avoid any penalties and interest charges on an extended return, you must send in the balance due along with the extension. What if you do not know the outcome of your tax return? Obviously, someone who would ask that question is having their tax return extended because it has not been prepared by the due date. In that case, you would want to send what you think you might owe with the extension form. If you send in more than you end up owing, a refund is coming your way. If not enough, you will have a balance due situation and there will be a late payment penalty and interest assessed by the IRS however, the amounts of the penalty and interest will be lower than if you send in nothing with your extension.

Form 4868 “Application for Automatic Extension to File a U.S. Individual Income Tax Return” will prevent a late filing penalty if your 2017 tax return is filed by 10/17/18, as the due date for 2017 returns is 4/17/18. Make sure you make a plan to see your accountant sooner than later. We can advise on how penalties and interest are assessed and more importantly, help you with a plan because we are here to help you in being a compliant taxpayer!