I’m a Tax Advisor: 3 Risks and Benefits of Filing Late vs. Filing an Extension
Missing the tax deadline happens more often than you think. Life gets busy, documents go missing, and before you know it, it’s April 15. What you do next matters more than missing the deadline itself. In most cases, you have two options: filing late or filing an extension. Each route has upsides and downsides.
MoneyLion spoke to Katrina Martin, an enrolled agent and tax advisor at Wow Tax & Advisory Service, to share the risks and benefits of filing late and filing an extension. Here’s what she said.
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Risks of Filing Late
Penalties
One of the most obvious risks of filing your tax returns late is penalties. “Failure-to-file and failure-to-pay penalties and interest are steep when you file late and continue to accrue until filed,” said Martin.
If you can’t file by the deadline, it’s better to file an extension instead. This is because you’ll likely pay more failure-to-file penalty than failure-to-pay penalty. According to the IRS, the failure-to-file penalty is 5% of the tax owed for each month your return is late, up to a maximum of 25%.
It Can Hurt Your Standing With the IRS
Filing late can also affect your standing with the IRS. As Martin explained, "Being out of compliance could impact future requests, such as IRS penalty waiver(s) or fee reductions.” This means if you had issues filing on time before, the IRS may be less willing to give you a break later.
You Could Lose Your Refund
If you’re expecting a tax refund, delaying filing taxes may seem harmless. However, you could lose your refund entirely if you wait for too long. “If you are due for a refund and wait longer than three years to file, you forfeit the refund,” Martin said.
Benefit of Filing Late
The only advantage of filing your tax returns late is that it buys you time to organize everything you need, including the funds you need to pay. “It gives you more time to gather documents and get bookkeeping cleaned up if needed,” said Martin. That extra time can help you file a more accurate return and avoid errors that could trigger penalties or letters from the IRS.
Risks of Filing an Extension
One of the most common misconceptions about extensions is that they give you more time to pay your taxes. No, they don’t. “An extension gives you more time to file; it does not give you more time to pay if you owe. Interest starts accruing after the 4/15 deadline,” Martin warned.
If you miss the deadline, interest and penalties begin to build up. You can avoid the failure-to-pay penalty by paying at least 90% of your total tax owed on or before the original due date.
Benefit of Filing an Extension
An extension is always a smarter move if you’re not ready by the deadline. It gives you up to six extra months to file your income tax return, helping you avoid the failure-to-file penalty. “You get up to six more months to gather documents, prepare to file, and avoid the tax season rush,” added Martin.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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