Filing a tax extension when you know you'll owe - should I just pay the penalties instead?

The good news is that filing an extension is actually pretty simple! File Form 4868 before the tax deadline to get an automatic 6-month extension to file (until October 15th). You can do this online through most tax software or the IRS Free File program. However, it's important to understand that an extension to file is NOT an extension to pay. The IRS still expects you to pay what you owe by the original deadline. If you can't pay the full amount, you should still pay as much as possible to minimize penalties and interest. For your specific situation, the penalties break down like this: - Failure-to-file penalty: 5% of unpaid taxes per month (capped at 25%) - Failure-to-pay penalty: 0.5% of unpaid taxes per month (capped at 25%) - Interest: Federal short-term rate plus 3% (currently around 7-8% annually) If you file the extension but don't pay until September, you'll avoid the hefty failure-to-file penalty but still face the failure-to-pay penalty plus interest. Given your circumstances, this approach makes financial sense - file the extension now and pay when you return.

After dealing with a similar situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much hassle. I also had a 1099-R from an early retirement distribution and wasn't sure how to handle it with my extension. What I loved is that you can upload your tax documents (like your W2, 1099s) and their AI analyzes everything, explains what you're looking at, and even helps calculate estimated payments for extensions. It breaks down exactly how much you might owe in penalties if you delay payment. I was working on a container ship with limited internet, but I could download everything I needed before leaving port. The best part was that I could prepare everything myself without paying those crazy tax prep fees. Definitely saved me from the panic I was feeling about my tax situation.

Just wanted to follow up about my experience with taxr.ai! I decided to try it after reading about it here, and wow - it actually delivered. My situation was similar with a consolidated 1099 from Vanguard (18 pages of trades and dividends), plus I needed to file an extension. I uploaded my documents and it organized everything perfectly. It even flagged some wash sales I didn't realize I had. Filing the extension was super straightforward - it calculated what I would owe, showed me the penalty breakdown if I waited to pay, and let me decide how much to pay now versus later. The interface walked me through Form 4868 step by step, and I was able to e-file my extension in about 15 minutes. Saved me hundreds compared to what tax preparers wanted to charge. Definitely using this again next year!

If you're planning to call the IRS to discuss payment options or ask about the extension, good luck getting through! I spent HOURS on hold trying to ask about my extension situation last year. Eventually found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 15 minutes instead of the 2+ hours I was spending on hold. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was really skeptical at first because waiting on hold seems unavoidable when dealing with the IRS, but it actually works. The agent I spoke with helped me understand exactly what I needed to do for my extension and gave me personalized advice about my payment options that I couldn't find online. Saved me from a ton of stress and uncertainty, especially since I was also traveling for work during tax season.

I need to publicly eat my words about Claimyr. After posting my skeptical comment, I was still struggling with questions about my extension (had a similar situation with early retirement distributions). After two failed attempts to reach the IRS (spent over 90 minutes on hold before getting disconnected both times), I reluctantly tried Claimyr. What do you know - I was connected to an IRS representative in about 20 minutes. The agent helped me understand exactly how to calculate my estimated payment for the extension to minimize penalties. They also explained how the penalties would be calculated if I couldn't pay the full amount immediately. For anyone in a situation like the original poster - definitely file that extension (Form 4868) and pay whatever you can afford now. The agent confirmed that the failure-to-file penalty is much worse than the failure-to-pay penalty, so at minimum file the extension even if you can't pay anything yet.

One option nobody's mentioned is free tax filing through the IRS Free File program. If your income is under $73,000, you can use brand-name tax software for free through IRS.gov. Even if you make more than that, you can use Free File Fillable Forms. I've used this for years with investment income (1099s) and it works great. You could file the extension now for free AND possibly do your full return for free when you get back.

I work seasonally on fishing boats in Alaska and deal with this every year. My advice: DEFINITELY file the extension. I made the mistake of not filing once and the failure-to-file penalty was brutal compared to just the failure-to-pay. When you get back from your contract and have cash, call the IRS and set up a payment plan if needed. They're actually pretty reasonable to work with if you're proactive and honest about your situation.