WHAT IS 'Filing Extension'

A filing extension is an exemption made to both individual taxpayers and businesses that are unable to file a tax return by the due date. Individuals can complete and file IRS Form 4868 by the regular date of their return, which is usually April 15, for an automatic six-month extension. Most business tax returns can be extended by filing IRS Form 7004. However, the extension of time to file does not provide a corresponding extension for payment of taxes owed. An explanation of the reason for the extension is not required. Some states accept IRS extensions, but others require taxpayers to file a separate state extension form.

BREAKING DOWN 'Filing Extension'

The filing extension for individuals was increased from four to six months under recent legislation. Taxpayers who cannot pay their taxes will not only gain nothing by filing an extension, they will also pay a much greater penalty than those who file and cannot pay. The failure-to-file penalty is usually five percent of the total amount owed per month and can go as high as 25 percent, while the failure-to-pay penalty is only 0.5 percent of the amount owed per month. The interest runs until the tax is paid in full. If a return is more than 60 days late, the minimum penalty is $210 or the balance of the tax due on the return, whichever is smaller.

There are three ways for a taxpayer to request an automatic extension of time to file an individual tax return: 1) pay all or part of their estimated income tax due and indicate that the payment is for an extension, 2) file Form 4868 electronically by accessing IRS e-file using a home computer or with the help of a tax professional who uses e-file, or 3) file a paper Form 4868 and enclose payment of the estimate of tax due.

U.S. citizen and resident taxpayers who are out of the country on the regular due date are allowed two extra months to file returns and pay any amount due without requesting an extension. However, interest will still be charged on payments made after the regular due date, without regard to the extension.

Filing Extensions for Businesses

For businesses organized as C corporations, the filing extension is due by the 15th day of the fourth month after the end of the tax year. For businesses organized as S corporations, the income tax return or extension is due by the 15th day of the third month after the end of the tax year. For businesses organized as partnerships, the extension is due by the 15th day of the third month after the end of the tax year. For example, the due date for an extension of an S corporation with a fiscal year ending March 31, 2018 would be July 15, 2018.

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