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Understanding Tax Extensions: What You Need to Know
Tax season can be overwhelming, especially if you’re still waiting for critical financial documents or need more time to review your tax return. In these cases, you may want to file a tax extension.
How do tax extensions work? What are the benefits? And how do you get started? Let’s break it down.
What does filing a tax extension do?
An extension is a form filed with the IRS to request additional time to file your federal tax return. The extension period is six months, extending the due date for submitting your individual return to Oct. 15.* In many states, filing an extension with the IRS will automatically extend the time to complete a state income tax return, but some states still require a separate extension form.
Filing an extension grants you additional time to submit your complete and accurate return, but it’s crucial to understand that while an extension gives you more time to file your tax return, it does not extend the time to pay any taxes owed. Here’s what happens if you don’t pay your estimated tax liability by April 15, 2026:
Failure-to-Pay Penalty
If you don’t pay at least 90% of your expected tax due by the original filing deadline (April 15, 2026), the IRS will charge a failure-to-pay penalty of 0.5% of the unpaid tax required to be shown on the return for each month or part of a month the tax remains unpaid. The penalty increases up to a maximum of 25% of the unpaid amount.
Interest Charges
In addition to penalties, the IRS charges interest on unpaid tax from the due date until the date of payment. The interest rate is determined quarterly and is the federal short-term rate plus 3 percentage points (currently 7% as of the publishing of this article). Interest compounds daily and, unlike some penalties, cannot be waived due to reasonable cause.
Extending your return allows you and your CPA more time to prepare your tax return to ensure an accurate tax return filing. In many cases, you may still be waiting for additional information (e.g., Schedule K-1, corrected Forms, etc.) to complete your return.
Why does my CPA suggest we extend my tax return?
If your CPA recommends that you file an extension, it may be for many reasons, such as:
- The volume of data or complexity of certain transactions on your return requires additional time.
- The amount of time remaining in filing season is limited for the CPA to complete client returns by the due date* because of late-arriving information. Perhaps you have a business you run that you receive a K-1 from that requires additional time to prepare or other outside investments that have information you need that isn’t completed until later in the year.
Many CPAs have a “cutoff” or deadline for clients submitting their tax information so they can plan their workload to ensure they complete all client returns and extensions by the due date.* Your CPA may also suggest filing an extension if pending guidance or legislation affects aspects of your return.
Am I more likely to be audited if I extend?
Extending will NOT increase your likelihood of an IRS audit. It is better to file an extension than to file an incomplete return or if you have not had time to review carefully before signing.
What are the primary benefits of extending my tax return?
- It provides additional time to file returns without penalty when waiting for missing information or tax documents (such as corrected Forms 1099s).
- You may qualify for additional retirement planning opportunities or additional time to fund certain types of retirement plans (e.g., SEP IRA).
- Allows more time to review your tax situation thoroughly, potentially identifying overlooked deductions or credits
- Reduces filing stress by extending the deadline during busy personal or professional periods
For those who have always filed by the original deadline, an extension can feel uncomfortable at first. However, many clients who initially hesitated to extend their returns later appreciate the reduced stress and improved accuracy that comes with having additional time to file properly.
Should I do anything differently if I am filing an extension or “going on extension”?
No, you still should give your CPA whatever information you have as early as possible or as soon as it becomes available.
Expect to pay any anticipated taxes owed by the due date.** You still need to submit all available tax information to your CPA promptly to be able to determine if a payment may be due with the extension. Proactively communicating with your CPA about any significant income changes or life events before year-end allows them to develop strategic tax planning approaches that could potentially reduce your overall tax liability.
If you are required to make quarterly estimated tax payments, individual first-quarter estimated tax payments are due April 15.** Your CPA may recommend you pay the projected balance due for last year and your first-quarter estimated tax payment for this year with your extension. This helps reduce the risk of having a balance due when your return is ultimately filed, and any overpayment can be applied to your current-year estimated tax. Year-end tax planning sessions with your CPA can help identify opportunities to manage your income, maximize deductions, and potentially reduce your quarterly tax burden before deadlines approach.
If you are anticipating a large overpayment that you want refunded, your CPA will likely try to complete your extended return as soon as possible once all tax information is available. Your CPA may also want to discuss tax planning opportunities with you so that in future years, you don’t give the IRS an interest-free loan. Regular tax planning throughout the year, rather than just at tax time, enables your CPA to help you make adjustments to withholding or estimated payments that better align with your actual tax liability. If you pay estimated tax payments, you should consider any anticipated overpayment on your current return when calculating quarterly estimates, and inform your CPA about any expected income fluctuations that might affect those calculations.
Is there anything I can do to avoid filing an extension if I know I am missing some information now?
If you know you will be waiting until the last minute for one or two documents, you may be able to reduce the chance of having to file an extension by providing all other available documents to your CPA as soon as you receive them. By doing so, your CPA can prepare a draft return for you to review and discuss in advance. And your CPA may be able to add the missing piece of data or last-minute information and complete your returns by the original due date.
Have there been any changes to the due dates of returns for this year?
At this time, there have been no changes to the due dates for tax year 2024. For taxpayers impacted by disasters, see Tax Relief in Disaster Situations.
Let D+L’s Team of CPAs Be Your Guide
Filing a tax extension is a useful tool for ensuring your return is accurate and complete. It does not increase your chances of an audit, and in some cases, it can provide financial planning advantages. However, it’s important to remember that while an extension gives you more time to file, it does not extend the deadline to pay any taxes owed. Make sure to submit all required payments by the original deadline to avoid penalties and interest.
At Dugan + Lopatka, our expert CPAs are here to help you make critical financial decisions with confidence. Connect with our team here.
*The federal filing deadline for 2025 individual returns will be April 15, 2026. The extension deadline for those returns is Oct. 15, 2026.
**The federal filing deadline for 2025 individual returns will be April 15, 2026