Tax return extension and what to do next
July 26, 2017 at midnight
Updated July 24, 2017 at 8 p.m.
For many people, the process of completing and filing a tax return is a daunting one. If you were forced by circumstance—unseen or otherwise—to apply for an extension, what's next?
The first thing to do is check the status of your tax extension, as there is always the possibility that it could have been rejected. If you used an electronic filing service, you should have been informed of the status of your application within 48 hours. If you sent it by mail, however, call the IRS to check whether the extension was granted if you still aren't sure.
If the IRS refused your extension, you should file your return as quickly as possible. The deadline is October 16, so you are now at the midway point. It is important to realize that a tax extension only lengthens your filing deadline and not the amount of time you have to pay.
If you were granted an extension due to not having been able to submit all the required documentation, you should contact employers and other entities as quickly as you can. You won't be liable for penalties until after October 16 if you do not owe tax. However, if you do, then interest and penalties will accumulate until the balance is paid.
You can pay your taxes by direct bank transfer, credit or debit card, or via a check or money order. However, if you don't have the available funds you can:
- Call the IRS and request a short-term payment extension, but you may accrue interest and penalties.
- Apply for an installment plan.
- Offer to pay your tax for less than you owe; this is known as an offer-in-compromise. This is only applicable if you are insolvent and will need to submit evidence to prove this. The IRS will look at your financial situation before they decide to go down this route and will only proceed if they are convinced they will never be able to recover the full amount from you. Be advised that this isn't always an easy process as portrayed in TV commercials, for example.
Remember, the penalty for late payment is 0.5% per month on your balance due, but for filing late it is 5% per month. If you are unsure how much tax you owe, the hiring of a CPA is highly recommended.