Running Out Of Time? File a Tax Extension
For those cutting it close to April 17th, it may be time to consider filing a tax extension. But while it’s pretty easy to get an extension until October 15th to file your taxes, you still have to pay any tax you owe by the 17th. Still, the penalty for failing to file (5% per month + interest) is a lot worse than the penalty for paying late (0.5% per month + interest). So even if you know you’re going to pay late, file an extension!
So how do you get one and how much will it cost? According to IRS Form 4868, there are three ways to do it:
1) Fill out the form and mail it in with a check by April 17th. You could make the the tax payments online, but since the 17th is less than a week away, you won’t have time to set it up if you haven’t already. Cost: Postage.
2) E-file via an accountant or tax software like H&R Block, and pay via an electronic bank withdrawal. Cost: ~$20.
3) E-file at Pay1040.com with your credit card. Cost: Convenience fee of 2.49% of the payment amount (minimum $1).
If you don’t like snail mail, I recommend using your tax software to estimate your tax liability first. If you think you will owe, then do the math to see if #2 or #3 is cheaper. For example, if you owe less than $800, then it will be cheaper just to pay with a credit card ($800 x 2.5% = $20). If you get cashback from your credit cards then your breakeven point may be even higher.
Now, if you are confident you are getting a refund, there is no penalty for filing late even without an extension. But why not spend a buck and get insurance against the potential 5% per month penalty I mentioned above? Just do #3 and pay $1. You’ll pay another $1 in fees, but you get your $1 payment back when you file your taxes.
Why do I know all this? Because I greedily thought that I could also put off paying my taxes with an extension. Good thing I looked into it first…
* As with all tax stuff, there are exceptions like if you like outside the U.S. I am not a tax pro.
April 12th, 2006 at 11:37 am
Just wanted to clarify that you can use your tax software to print out the form and mail by snail mail. That’s what we did last year, and that’s probably what we’ll do again this year. Last year we had a fairly new baby during tax time, this year we are selling our house. Thank goodness there is such a thing as an extension!