The initial tax deadline, April 18th, 2023 has come and gone. BUT do not panic, filing an extension by April 18th and paying the estimated tax due minimizes penalties.
What is an Extension?
Taxpayers may file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, (wow, that is a mouthful!) with the IRS, to qualify for a six-month extension to file the Federal Income Tax Return. Form 4868 does NOT grant an extension of time to pay. In order to qualify for an extension, a taxpayer must estimate the year’s tax liability based on the available information. If a taxpayer expects a balance due, then payment should be made with Form 4868 to avoid penalties or interest. The extension expires six months after the initial tax filing deadline. For example April 18th, 2023 was the initial filing deadline, therefore the extension will expire on October 16th, 2023.
Do I Have to Make Payment with my Extension, and if so, how do I Know How Much?
A payment is NOT required with the filing of Form 4868, BUT depending on your individual tax situation, penalties could be assessed for underpayment of estimated tax payment made with Form 4868. A payment should be made if a balance due is anticipated. Taxpayers must pay at least 90% of the prior year’s tax, or 100% of current year’s tax, to eliminate an underpayment penalty. Be sure to credit the payment made with the extension on the Federal Income Tax Return under the Payments section, when filing the return.
There are a couple ways of calculating the payment to be made with Form 4868:
How do I submit my Form 4868 to the IRS?
There are three ways to file, pay and submit your Form 4868 with the IRS.
What happens if I do not File an Extension or Make a Payment?
If an extension is not filed, and you owe additional taxes, penalties and interest are assessed on top of your tax liability.
Interest is calculated until the balance due is paid in full, the Internal Revenue Service interest rate changes in accordance with the Federal Short-Term rate plus 3 percent.
How can you limit the amount of penalties and interest on unpaid tax liabilities?
The only way you can limit the amount of penalties and interest on your unpaid tax liability is to file and pay your tax liability in full as close to on time as possible. I know that sounds like a DUH statement, but the IRS is unforgiving when balances are unpaid.
A credit for income taxes paid to a foreign country or U.S. possession. 401(k) plan. A deferred pay plan, authorized by Section 401(k) of the Internal Revenue Code, under which a percentage of an employee’s salary is withheld and placed in a savings account or the company’s profit-sharing plan. Income accumulates on the deferred amount until withdrawn by the employee at age 59?