5 Things You Need to Know About Filing a Tax Extension

O.K. -- deep breath.

We get it's often a scramble to get that darn tax return completed on time. Between life and missing documents, that deadline sneaks up out of nowhere.

But before you panic, don't forget you have until Tuesday April 18 to file, thanks to a federal holiday. But if that doesn't help, go to Plan B.

File an extension and give yourself some more time. Just know that it's not an extension of time to file pay your bill.

Yes, we'll get to that and a few other last-minute things you need to know.

For more tax tips, check out TheStreet's Tax Center

1. Just extend if you can't get it together
1. Just extend if you can't get it together

It's fine. You won't be penalized or singled out.

File Form 4868 - Application for Automatic Extension of Time To File U.S. Individual Income Tax Return by midnight on April 18, and the IRS will automatically grant you a six-month extension of time to file. Your tax return then will be due on October 16, 2017 (October 15 is a Sunday). And you're done.

And there are tons of reasons to extend, other than being completely unorganized. You may be waiting for missing documents, have an uber complicated return or work in the business. "People who work in the tax industry often extend because they are so busy taking care of their clients," notes Lindsey Buchholz, tax attorney and program manager at The Tax Institute at H&R Block.

So just file the form and don't feel bad about it. 

Unfortunately, your tax bill is still due on April 18, which we'll get to in a minute.

2. Avoid the late filing penalty, because it's huuuuge
2. Avoid the late filing penalty, because it's huuuuge

If you don't file either your tax return or an extension on April 18 and you owe money, your fees will start stacking.

Uncle Sam is like a little kid on his birthday. He wants attention on the big day. So just send him something. 

Otherwise watch him stomp his feet and smack you with fees.

The late filing penalty is 5% of the unpaid taxes you owe for every month your return is late.

It caps at a 25% of your taxes owed, but man, can that add up fast. 

So just file the darn extension form and be done.

3. There is a late payment penalty too
3. There is a late payment penalty too

In theory, you owe your full tax bill on April 18, regardless of whether you extend or file your return. 

But we get it. You might have been caught off guard, especially if you were self-employed or joined the sharing economy this year and didn't set enough money aside for taxes.

So don't panic - but don't blow it off. Because -- no surprise -- there is a late payment penalty as well. 

If you owe the IRS money, the penalty is calculated as 0.5% of the amount you owe for each month you're late, up to a maximum of 25%. So while it's not nearly as bad as the late filing penalty, Uncle Sam is still going to ding you.

4. Go on the IRS's payment plan if you can't pay
4. Go on the IRS's payment plan if you can't pay

If you don't have the money to pay, the IRS actually offers some help, as long as you don't ignore it. 

"Don't forget, the IRS has ability to garnish your wages or put a levy on your property, if you don't do anything," reminds Buchholz.

So there are a bunch of tax payment options. But you should first consider going on the IRS's payment plan. You basically can tell the IRS how much you can afford to pay each month and have the amount debited from your checking account. And that will make the agency happy. 

If you owe $50,000 or less in combined tax, penalties and interest, and filed all your required returns over the years, you may be able to apply online.

If not, just file Form 9465, Installment Agreement Request. Click here for more info.

It's not hard and it makes Uncle Sam happy, because he knows you're making an effort.

5. You can charge your tax bill
5. You can charge your tax bill

As much as we don't like this option because the interest on your credit card is probably ridiculous, you can charge your tax bill and rack up some airline miles.

Check out Official Payments for the different options. But you can use your Visa (V) , American Express (AXP) , MasterCard (MA) or Discover (DFS) to pay your bill with your extension or actual return.

But know that Official Payments will charge you a processing fee and your credit card still will hit you with all the typical fees and interest. So make sure those extra airline miles outweigh those costs.

The bottom line is do something on April 18. File, extend, go on a payment plan.

Whatever you choose, be relieved that it's over...for now.

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