Extension

• The IRS grants an automatic extension for up to six months for filing an income tax return. File Form 4868 "Application for Automatic Extension of Time to File U.S. Individual Tax Return" to get an extension. But you must estimate any income taxes you owe and pay at least $1 if you estimate that you owe taxes. File the extension timely, usually by April 15 of the year following the tax liability. The extension delays filing of the tax return, usually until October 15 but does not delay payment of taxes owed.
  
  

Significance

• If you do not pay the total tax estimated or owed at the time of filing for an extension, the IRS charges a late-payment penalty and interest on the amount unpaid. For this reason, the IRS recommends payment of as much of the tax liability as you can, since the penalties and interest apply only to the unpaid amount.
  
  

Alternatives

• You may pay income taxes with a credit card or obtain a loan for taxes owed. The IRS has a payment plan, but the cost for setup is significant and the terms are less favorable than a bank loan or personal loan.
  
  

Penalties

• The IRS has two penalties relating to individual income taxes and payment. One is the late-filing penalty for those who do not file for an extension in a timely way and do not file Form 1040 by the April 15 due date. The late-filing penalty is usually 5 percent of the total per month, for a maximum penalty of 25 percent of the total owed. The other is the late-payment penalty for those who do not pay in a timely way. The late-payment penalty is usually 1/2 of 1 percent of tax not paid by the due date, charged for every month or part of a month of delay, up to 25 percent. Estimated taxes are not the basis for the penalty; actual taxes owed are the basis.
  
  Good cause may prevent the imposition of penalties. Attach a statement to your Form 1040 explaining late payment; do not attempt to explain with the Form 4868 extension.
  
  

Solution

• If you are an employee, file a new W-4 form with your employer to withhold more taxes from each paycheck. If you file quarterly self-employment tax payments, increase your tax payments to avoid owing significant taxes at tax time.