Sometimes, after you add up how much taxes you owe, you realize need more time to pay. A tax filing extension gives you six extra months to organize your books and get the money you need to finance your owed taxes. That means you’ll file on October 15th instead of April 15th. It’s very easy to get an extension, but for folks who aren't expecting a refund (freelancers and 1099 contractors), there's a penalty to be aware of.
It takes 5 minutes and you can do it online here.
If you live in a state that charges state taxes, you’ll need to take a look at how your state handles it. In the majority of cases, your state will automatically extend alongside your federal extension, but that isn’t always the case.
If you’re expecting to get money back at tax time, then there’s no penalty. However, if you owed money in April, there will be a small penalty.
The penalty is about .5% per month, and 6 months of inflation is around 2%. So for example if you owed $2,000 in taxes, you will need to pay back around $2,100 in October.
Things get a bit more complicated at the state level - different states have different policies but overall they tend to be similar to the federal one. So your $2100 might go up another $50 or so. Simply Google your state’s policy ex: “Minnesota tax extension penalty”.
Your penalty will be a lot higher - around 5% of your tax payment per month. So if you wait until October to file taxes where you owed $2,000, you will owe $2,600.
Remember - you can, and should, looks for creative ways to reduce how much you'll owe, such as remembering to claim these 25 most commonly missed tax write offs.
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