Last-minute tax tips: What to know before filing an extension

As of the end of March, 48% of Americans had not yet filed their taxes, according to a Trust Pilot survey. H&R Block Chief Tax Officer Kathy Pickering joins Wealth! to help last-minute filers ensure they avoid IRS penalties and submit on time.

Pickering's message to filers: if you haven't started yet, start now. As the deadline approaches, many filers may be considering an extension, but Pickering says Americans often confuse what an extension can offer them: "An extension to file your tax return is not an extension to pay your taxes due," she emphasizes.

Because the IRS processes tax returns on a "first in, first out" basis, Americans expecting a refund should file soon, Pickering says. If not, she adds, filers should expect delays to their refund. If filers are still struggling to get their documents in order, Pickering recommends paying at least 90% of what they paid in taxes last year to avoid late payment fees from the IRS.

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This article was written by Gabriel Roy

Video transcript

BRAD SMITH: Manana, she once said time goes by so slowly, but it definitely seems to hit warp speed this time of the year for those staring down the deadline to file tax returns. And there are still millions of Americans out there who have yet to get to it. A recent survey from Trustpilot showed that, as of March 29, 48% of Americans had yet to file their taxes. Of course, waiting until the very end comes with its own set of risks.

So, to help make sure you get everything in on time, joining me now, we've got Kathy Pickering, who is the H&R Block chief tax officer. Kathy, great to see you. Great to catch up. First and foremost, I mean, the time-- the clock is ticking here. So the last-minute tip for those who are out there who haven't started right now, what would it be?

KATHY PICKERING: Hi. Good to see you, Brad. Thanks so much for having me on today. And I just got to say it's time to file. Let's get going.

[LAUGHING]

So my biggest tips are if you haven't started, the first thing you need to do is get started. H&R Block has a great tax preparation checklist. You can print it out. It's a great way to go through and just check do you have all the documents that you need in order to be able to file your return. If you do, there's still plenty of time to go ahead and prepare your return and get it filed. If you don't, then you may want to consider filing an extension.

But an extension is not an automatic, you know, don't pass go without paying $200 kind of a thing. There's things you need to know about filing an extension. If you owe money, an extension to file your tax return is not an extension to pay your taxes due. And that's the thing that a lot of people don't understand, and that can really be an important thing to know when you're considering your options here.

BRAD SMITH: What if you know that you're going to be getting a refund, Kathy?

KATHY PICKERING: Well, then you still want to go ahead and file your taxes as quickly as possible because the IRS processes refunds in tax returns in a first-in, first-out basis. So if you are owed money, then you're just delaying how long it's going to take to get your refund.

BRAD SMITH: Certainly. When you think about how people can estimate their taxes as well, I mean, there are certain tax calculators out there. What's the best way to go about using a tax calculator should those in the very technologically savvy era like myself, like some friends, like family members out there should they want to be able to tap into a tax calculator?

KATHY PICKERING: So, of course, think that H&R Block's tax calculator is quite good to be able to estimate your taxes. But that said, there's many of options out there. However, the other thing you can do is in order to avoid late payment penalties is make your tax payments. So if you look at how much tax you paid last year and pay at least 90% of that, then you can avoid underpayment penalties, which, you know, that alone can help save you a lot.

And honestly, depending on how complicated your situation is, it's just as much effort to prepare your return as it is to estimate your taxes. So if you use an online system or, you know, something like that, you can go ahead and prepare your taxes even if you're not really ready to hit send to file your taxes and just see what your situation is.

BRAD SMITH: If you can't pay what you owe in full, what is the percentage threshold that you should be still submitting with the return?

KATHY PICKERING: So ideally, if you're paying at least 90% of what you owed last year, that's a good measure of thumb. The other thing I would say is there are so many options for paying how much you owe. So first, of course, you can just pay online with the IRS. Do a direct debit from your bank account. But if you can't do that, you can pay with a credit card, and a lot of people like to do that even if they could pay otherwise. But they can get those reward points on their credit card.

So some people like to do that. Remember, there's a service fee for setting up that option. And if you really just cannot pay your balance due in full, it's best to pay as much as you can because everything that you pay reduces any penalties or interest that would get accrued on the outstanding balance. And last but not least, you can set up a payment plan with the IRS to pay it off over time if you just can't pay it in full.

BRAD SMITH: All right. Just lastly, and I believe we have a nice little, pretty full screen for this, so I do want to make sure that we show it. We talked about it a little bit earlier on, and it's with regard to filing for the extension. The form that people need to know about Form 4868, OK? And there we go. There's the full screen. So run us through this and the key dates that people should also remember when they are filing this.

KATHY PICKERING: So the Form 4868 is the file-- the extension filing form. And it's really easy to do. So if you're in that situation where you just need to file an extension, you could go online to the IRS and print out this form. Sign it and stick it in the mail. But remember, it has to be postmarked April 15. So you also want to check the date-- the times of your post office to make sure that you're getting in before they close.

It's easy enough to fill it out online. You can file it for free with the free file options. And the thing is that it has to be filed by midnight local time if you're filing it electronically. But it's very easy to do and so worth it to at least file the extension if you can't get your tax return in on time because that failure to file penalty is 10 times more than the failure to pay penalty.

BRAD SMITH: Kathy Pickering, thank you very much. H&R Block chief tax officer joining us with the goods here ahead of the big deadline day. Thanks so much, Kathy. Appreciate it.

KATHY PICKERING: Happy filing.

BRAD SMITH: Thank you.