With the deadline for filing taxes less than a month away, some people won't be able to complete their paperwork on time. That means those taxpayers will have to file for an extension. We asked three Motley Fool contributors to discuss the most important thing you need to know about filing for an extension on your taxes.
: To start, you must file the extension by April 15. If you fail to do so you will be charged a steep failure to file penalty.
The penalty is 5% of your unpaid taxes for each month or partial month that your return is late, though it is capped at 25% of your unpaid taxes. For example, if you owe $3,000 and you file your taxes two days late, you will owe a $150 penalty. If you owe the same amount and file your taxes six months late, the penalty rises to $750. Note, both of these do not include interest for failing to pay, which Dan Caplinger discusses below.
Even if you have a small amount of unpaid taxes you will still be dinged. If you wait longer than 60 days after the due date to file the minimum penalty rises to the smaller of $135 or 100% of the unpaid tax.
Lastly, If you are owed a tax refund, there is no failure to file penalty. This is because you are giving the government an interest-free loan, so the government would like to keep your money as long as possible.
Dan Caplinger: Perhaps the most important thing you need to understand about filing for an extension on your tax return is that an extension to file your return doesn't mean you don't have to pay your taxes on time. Even with the automatic extension, any tax you owe is due on April 15, and if you don't pay it along with your request for an extension, then you'll potentially have to pay interest and penalties.
The failure to pay penalty is one-half of a percent of the tax due for every month that you're late. In addition, you'll owe interest on the unpaid amount at the going rate for underpayments, which is currently 3% per year.
In certain circumstances, though, the IRS will waive the penalty. Specifically, if you paid at least 90% of your actual tax liability on or before the original due date for your return, and if you paid the remainder when you actually filed your return later on, then the penalty won't apply during the six-month extension. You'll still usually owe interest, however.
Your best course of action is to make a best guess on how much you owe and pay it with your extension. That way, you'll usually avoid any interest and penalties from failing to pay.
Matt Frankel: One thing you definitely need to know if you plan on filing for an extension is that there are separate procedures for filing to extend your federal and state tax deadlines.
The procedure for extending your federal tax deadline is pretty straightforward. Simply file IRS form 4868, either with a paper copy or online, and you'll be granted a six-month extension to file your tax return.
However, your state might have its own procedure. Some states, such as Alabama and California, don't require you to submit any additional paperwork -- you can take until Oct. 15 to file your state return if you need to. On the other hand, some states, such as New York, have forms that must be filled out if you need extra time with your tax return. Efile.com has a good directory with links to the rules and procedures for each state.
Most states have an Oct. 15 deadline for taxpayers who file an extension, but a few have deadlines in November. And just like with your federal taxes, any tax you owe is still due on the regular tax deadline whether or not you receive an extension.
The article 3 Things to Know if You Need to File a Tax Extension originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. Dan Dzombak has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.