Filing for a Tax Extension (Taxes: Part I)
Albert Einstein once said, “The hardest thing in the world to understand is the income tax.” This episode is one of a two-part series on your federal income taxes.
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If you do choose to file an extension, you must pay at least 90% of your estimated tax liability in order to avoid penalties. Any tax liability owed that you pay after April 17 will incur interest and additional penalties until you pay the tax. You can avoid paying penalties and interest if you submit a statement explaining the reason for failing to pay and have paid 90% of your estimated taxes.
It is also important to be honest and accurate in estimating your tax liability on Form 4868. If the IRS later finds that your estimate was unreasonable, the extension for filing your return will be considered void, and you will face all the penalties and interest that you would have for failing to file your return.
Once you have properly submitted Form 4868, you have some breathing space. Please note that failing to file for an extension is not likely to lead to criminal prosecution by the IRS. The agency has a long-standing practice of not recommending criminal prosecution of individuals who make mistakes. They know that the government will get more money by informally resolving disputes and bringing people back into the system than by paying lawyers to prosecute every case.
Last, consider your state taxes. Many states automatically give you an extension if you properly filed for a federal extension. If not, you will also need to file for an extension in your state.
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