If you haven’t filed your taxes yet, you still have time to file for an extension. Doing so will allow you to push back filing your return until Oct. 15.
(No, even though the IRS pushed back 2020 tax day to July 15, you don’t get more time to file for an extension.)
Here’s what you need to know about filing for an extension.
5 Myths About Filing for a Tax Extension
Filing for a tax extension is pretty easy, but there are a lot of misconceptions about the topic. Here are five myths you shouldn’t believe.
Myth #1: If I File for an Extension, I Don’t Need to Pay Until Oct. 15
The truth: Getting a tax extension gives you more time to submit a return, but you don’t get extra time to pay. You’re still required to estimate the taxes you owe and pay them by July 15. Otherwise, you’ll pay late fees and interest.
You can generally avoid penalties for the 2019 tax year if you do one of the following by July 15:
- Pay at least 90% of what you owe for 2019.
- Pay 100% of your tax liability for 2018 if your adjusted gross income (AGI) was less than $150,000.
- Pay 110% of your tax liability for 2018 if your AGI was over $150,000.
If you can’t afford to pay, it’s still essential that you either file a tax return or request an extension. The penalty for not filing a return on time is 5% of your unpaid tax bill per month, up to 25% of what you owe. But if you file and don’t pay, it’s only 0.5% per month of the unpaid amount, up to 25%.
You can set up a payment plan online in most cases if you can’t afford the entire amount due.
Myth #2: You Need a Reason to Ask for an Extension
The truth: The IRS doesn’t ask for a reason when you request a tax extension. The IRS will automatically approve your request as long as you’ve filled out the form correctly and on time.
Myth #3: An Extension Gives Me More Time to Fund My IRA and HSA
The truth: The deadline for funding your individual retirement account or health savings account is tax day, regardless of whether you file for an extension. That means that July 15 is the last day you can contribute to your IRA or HSA and have the contribution count for 2019 instead of 2020.
Myth #4: You Need Professional Help to Request an Extension
The truth: You can file easily using whatever tax filing software you normally use. If you have trouble estimating your taxes, as you’re required to do when you request an extension, that’s a pretty good sign that you need to call a pro for tax help, regardless of whether you’re filing for an extension.
Myth #5: An Extension Increases Your Odds of Being Audited
The truth: The IRS doesn’t view a request for an extension with suspicion; asking for one won’t increase your chances of an audit. In fact, if extra time is what you need to make sure your return is error-free, an extension could actually help you avoid an audit.
Some things that are known to trigger audits: having a high income, reporting very little income, home office deductions, being self-employed (especially if you deduct lots of business expenses) and numerous charitable deductions.
Robin Hartill is a certified financial planner and a senior editor at Codetic. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]