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Updated: March 31, 2025 How To

How to buy time — and save money — with a tax extension

By Shawn Starkey, Swanson Group

Tax season is a frenetic and frenzied time for most tax professionals who work around the clock completing return after return. And if you aren’t quick enough to provide all the documents needed, you will automatically be placed on an extension.

Shawn Starkey of the Swanson Group
Photo / Courtesy of the Swanson Group
Shawn Starkey

If it has never happened to you before, it can be unnerving to be ‘late’ and face the risk of possible penalties and interest fees. However, filing an extension is straightforward and can often work to your benefit.
 
Filing a tax extension can alleviate stress, provide access to retroactive tax law changes made after the filing deadline (without having to file a costly amendment), and provide more time to carefully review your tax return, which could end up saving you money. But if you don’t know how the extension process works, you could end up paying penalties or interest unnecessarily. Here's what you need to know.

Understand the extension process 

Filing an extension provides more time to submit your tax return. Almost all formal requests are granted and allow for up to six extra months (Oct. 15) to file. One important thing to understand is that filing the extension only provides more time for the paperwork, not the tax payment, which is still due on April 15. You may face penalties or interest if you do not pay on time.

Estimate (and pay!)  your tax liability 

If you are a W2-only employee, it is likely you’ll pay or be paid very little if you have appropriate taxes withheld during each payroll. If you are a business owner, tax time is a little more complicated. Most businesses pay quarterly tax estimates in January, April, June and September. Your accountant will use your year-to-date earnings and your quarterly tax payments to estimate what you’ll owe or be returned. You’ll send a tax payment with the estimated amount to the state and federal government either by mail or online before your return is filed.

Review payment options 

Typically, you must pay at least 90% of your expected tax liability to avoid underpayment penalties. If you cannot pay the full amount, the IRS will offer payment plan agreements. This will minimize interest if you cannot make the full tax payment and set a manageable timeframe to pay your taxes.

Send in an estimated payment 

Often at this same time, taxpayers send in an estimated payment for the first quarter for the following tax year. This strategy provides wiggle room if you underestimated your extension payment, or it could ensure your Q1 estimate is made on time.

Track your extension confirmation

After you file for an extension, make sure you receive confirmation from the IRS. If you're filing electronically, the IRS will provide a confirmation number. For paper submissions, ensure you receive a receipt of filing. Keep this as proof in case there are any discrepancies with your filing. If you file with a tax professional, they will keep this on your behalf.
 
If you’re unsure about doing this alone, contact a tax professional who can guide you through the process and limit any unwanted surprises.

About the author

Shawn Starkey is a staff accountant with the Swanson Group in Westbrook. He can be reached at shawn@yourmainecpa.com,

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