6 Things to do After Filing a Tax Extension

The deadline for filing your income taxes has come and gone. Like millions of Americans, you took advantage of the ability to extend the tax deadline to October 17th, 2022. What now?

While you now have some extra time to file your taxes, there are still active steps you should be taking to avoid fees and penalties. In this article, we look at the 6 things to do after filing an extension to help you file your taxes on time without additional fees.

What Does it Mean to File an Extension?

It’s essential to understand what it actually means to file a tax extension. When the IRS approves a tax extension, they grant you more time to file your tax return. However, they are not giving you extra time to pay any owed taxes.

The good news is that when you file for a tax extension, you avoid the failure-to-file penalty. The failure-to-file penalty is charged at a rate of 5% per month that your return is late. Therefore, you are avoiding a charge for 4.5% of your owed taxes as a late filing fee and 0.5% as a late payment fee. The failure to file penalty maxes out after five months at 25% of your total taxes owed.

6 Things to do After Filing a Tax Extension

There are a few things that you should do after filing for a tax extension to avoid penalties and maximize your tax return.

Check for State Requirements

If your state charges income tax, it’s important to look into the rules for filing an extension. While most states give you an automatic extension when you file a federal extension, some require you to file an extension with the state directly.

You can find the information for your state’s extension requirements on the state comptroller’s site.

Pay Your Taxes

Getting an extension does not mean that you get an extension to pay your taxes. It’s essential to pay any anticipated owed taxes by April 18th, 2022 or as close to then as possible.

Those who don’t pay their taxes by the deadline are charged the failure-to-pay penalty. This penalty is charged at an increasing rate of 0.5% on the taxes owed and maxes out at 25% per month. Additionally, if you are 60 days past due, the minimum penalty is $225 or 100% of the taxes owed (whichever is smaller).

This penalty is assessed on top of the interest rate charged on taxes owed to the IRS. The interest rate is typically the federal short-term interest rate plus 3%.

Beef Up Your Retirement Savings

If you are self-employed, filing an extension gives you more time to contribute to a solo 401(k) plan or Simplified Employee Pension (SEP) IRA from the previous tax year. You can continue to make contributions until the October 17th extended deadline.

Withdraw Excess IRA Funds

If you notice that you exceeded the IRA contribution limits when filing your tax return, an extension allows you extra time to withdraw those contributions without penalties.

Work on Gathering Tax Documentation

You should continue to work on gathering any documentation that you need to file your taxes. While you have until October 17th to file your taxes, it’s important to have everything you need to file your taxes before then.

Once October 17th comes and goes, there is no way to extend the deadline further, and all the fees associated with filing late kick in.

Look for Tax Breaks

One significant benefit of filing an extension is that it gives you extra time to prepare your tax documents and search for additional tax breaks. Additionally, if by some chance you made an error on your tax return, it grants you extra time in the future to correct this.

The IRS permits you to request a refund up to three years after filing a tax return. Therefore, in the rare instance where you overlooked something and are owed a refund or additional funds, requesting an extension gives you more time to catch the error.

Are There Penalties for Filing Late if You Are Owed a Tax Refund?

There is no penalty for failing to file or filing late if the IRS owes you money. The IRS is happy to keep your money and does not pay interest on the money they hold past the deadline.

Aside from the IRS not paying interest on your money, there are a few downsides to failing to file when you are owed a refund. If you fail to file your taxes within three years of the deadline, the IRS no longer owes you a tax refund.

Additionally, failing to file on time puts your ability to claim certain credits at risk. This is especially true if you are eligible for the Premium Tax Credit (PTC) in order to assist with health insurance.

Therefore, it’s in your best interest to file your return as soon as possible if you expect a refund. Failure to do so could result in you missing out on the money you are owed.

How Can I Get Help Filing My Taxes After the Deadline?

After filing an extension, you still have to figure out how to accurately file your taxes most advantageously. At e.file-tax.net, we are here to assist you with filing your taxes after requesting an extension.

As an authorized IRS e-file provider, we have the tools to help you file your taxes effectively. In addition, our team of tax professionals is ready to answer any questions you may have about filing your taxes. So contact us today to get started.

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