What does it mean to file an Extension?

I’m sure you’ve all heard the phrase “file an extension” but do you know what that actually means? Some people think it’s a bad thing, others think it gives you unlimited time to file your tax return. In this article, I will dig deep into what it actually means to file an extension.

What is an Extension?

An extension allows you an additional 6 months to file your tax return. For Partnership and S Corporation tax returns due on March 15th, an extension grants you until September 15th to file without penalty. For personal, corporate and trust returns due April 15th, an extension gives you until October 15th to file without penalty. (NOTE: the 2020 federal personal tax return deadline was moved from April 15th to May 17th).

What an Extension is NOT!

An extension does not allow you to PAY your tax liability late without penalties and interest. This is why we advise all of our clients to make a payment with their extension if they anticipate owing money.

How much should I pay with my extension?

Ideally, you'd like to have a 100% of your tax liability paid in when you file your extension. To avoid penalties and interest however, you just have to pay in 90% of your current total tax liability. Don't forget to take into consideration what you've paid in through withholding and estimated payments as well. If you truly have no idea what your current year will look like, you can instead use last year's liability and pay in 100% of that amount (110% if you're single and have an Adjusted Gross Income of $150,000 or more).

When are Extensions due?

You must timely file your request to extend by the original due dates of March 15th or April 15th. (Note: 2020 personal taxpayers have until May 17th to file their extension. Check with your states for their rules though.)

How do you file an Extension?

Your tax preparer can electronically file an extension with or without payment. You can also mail in your extension form. It must be postmarked by the original tax due date also must be mailed to the appropriate taxing office based on your location and tax type.

What about State Extensions?

Most states grant an automatic 6-month extension when your federal extension is filed. Some states such as New York require you to file a separate state extension. If you owe or anticipate owing money and need to make a payment with your extension, then you do need to file a state extension and submit your payment by the due date. (Note: check with your state to see if they have extended the personal 2020 filing date to May 17th or not.)