The official tax deadline for most individual taxpayers in the United States may be April 15, but millions of Americans file for tax extensions every year. The extra time allows taxpayers to review their obligations, ensure accuracy, and identify potential tax-saving opportunities.

In this guide, we’ll explain how to file a tax extension with the IRS, explore its benefits, and highlight potential drawbacks.

What is a filing extension? Explaining tax extension requests

Tax extensions give taxpayers six additional months, generally until October 15, to file their income tax return, but there’s a catch: Extensions don’t extend the deadline to pay. To avoid penalties and interest, any taxes owed must still be paid by the unextended due date (April 15 for most individuals). 

Because the IRS still requires payment by the unextended due date, even if your tax return isn’t ready, you’ll need to estimate your total tax liability for the year. This means reviewing your income, deductions, and credits to calculate an approximate payment when requesting a tax extension. While estimating without finalized forms might feel tricky, a good-faith effort generally helps you stay compliant and avoid penalties.

Tax extensions and crypto

For crypto investors, filing for a tax extension offers several advantages. Crypto transactions often involve complex calculations and sometimes even lack explicit tax guidance, especially for activities like liquidity pool transactions, wrapping transactions, lending, liquid staking, or yield farming. Collecting records from exchanges and wallets, consolidating your transactions, fixing any data gaps, and correctly calculating any taxable sales or exchanges while applying the proper accounting method, such as FIFO or specific identification, can be time-consuming. 

Extending the filing deadline gives investors additional time to carefully review their transactions, ensure accurate reporting, and minimize the risk of errors that may result in IRS inquiries or adjustments.

How to apply for a tax extension 

The easiest way to file a personal tax extension is by submitting Form 4868 to the IRS electronically or by mail before the April 15 deadline. Sole proprietors and single-member LLCs reporting on Schedule C should also file Form 4868.

Business entities – such as corporations, partnerships, and multimember LLCs – and trusts and estates should file Form 7004 for extension requests.

Remember, when filing a tax extension, it’s important to estimate and pay your tax liabilities by the unextended due date (April 15 for most individuals) to avoid late payment penalties and interest. If possible, it’s a good idea to overestimate the payment. This minimizes the risk of underpayment penalties, and any overpaid amount can be refunded or applied to next year’s taxes.

Many states automatically extend your tax deadline if you file a federal extension, but some may require a separate request. Confirm with your state tax agency whether a separate extension request or state tax payment is required to prevent penalties. Just like with a federal extension, you should generally pay any balance owed by the unextended due date to avoid penalties and interest.

What's the IRS penalty for missing the extended October 15 deadline?

Missing the October 15 extended tax filing deadline, even after receiving an extension from the IRS, can result in significant penalties and interest. You'll also be liable for these penalties and interest for missing the unextended deadline if you fail to file an extension and/or fail to pay the amount due by the unextended due date. The IRS imposes a late filing penalty of 5% of the unpaid taxes for each month (or part of a month) the return is late, up to a maximum of 25%. Interest accrues daily on any unpaid taxes, compounding the amount owed. The interest rate is determined quarterly and is calculated as the federal short-term rate plus 3%. As of Q1 2025, the rate is 7%.

Taxpayers should set calendar reminders to avoid penalties and interest and consider consulting a CPA to ensure timely filing and payment compliance.

Pros and cons of filing a tax extension

Filing a tax extension might seem unusual, especially if you’re used to filing before the unextended due date of April 15. But it’s actually a common practice and an easy way to add flexibility to your tax planning.

That said, the extra time can be a welcome relief, but filing for a tax extension also has downsides.

Here’s a closer look at the pros and cons of filing a tax return extension:

Pros of filing tax extensions

• Additional time for documentation: If filling out all the forms feels overwhelming, filing a tax extension can give you some more time to get everything in order without the April 15 pressure.
• Awaiting IRS guidance: In certain situations, like a crypto exchange declaring bankruptcy or a smart contract hack, taxpayers may benefit from additional time to assess tax implications and incorporate any new guidance issued by tax authorities.
• Potential cost savings: Tax season can be hectic – and getting professional help is usually more costly, as CPAs are often the busiest and priciest leading up to April 15. By filing for a tax extension, you can avoid the rush, save on accounting fees, and get more personalized help during the less chaotic months.

Cons of filing tax extensions

• Mandatory extension payment: Again, even with a tax extension, you still need to estimate and pay your taxes by April 15 to avoid penalties and interest. If you’re planning to file for a tax return extension due to your digital assets, tools like CoinTracker’s Portfolio Tracker give you a clear view of your entire transaction history and real-time portfolio updates and taxable gains, losses, and income. With everything in one place, CoinTracker helps you estimate your crypto taxable income accurately, making you more confident about the amount you owe.
• Delayed refunds: Filing for a tax extension means waiting longer for any potential refunds. If you're counting on those funds for expenses or market moves, a delayed refund could affect your cash flow. The IRS does not pay interest on delayed refunds due to extensions.
• Less certain investment decisions: Taxes play a big role in deciding when to buy, sell, or hold crypto. If you file for a tax extension, you might not know how much you owe for your crypto gains and income. Without this knowledge, you may have to sit on funds escrowed for taxes for longer than you would like instead of being able to reinvest them into the market. 

When to consider filing a tax extension due to cryptocurrency taxes

Deciding whether to file a tax extension often comes down to whether you have any missing tax forms, such as K-1s, need more time to gather all your crypto data and properly reconcile your transactions, or have unanswered questions about your tax situation. If you're an active crypto trader, that extra time can be invaluable for reviewing transactions. This is especially true for investors navigating newer areas of the decentralized economy – like liquid staking, crypto loans, or liquidity pools – where tax liabilities can be more complicated to calculate.

In some cases, waiting might be the best option. For example, after high-profile exchanges like FTX or Voyager went bankrupt, many investors delayed filing to monitor legal proceedings or wait for potential IRS guidance. Similarly, the IRS often automatically grants filing and payment extensions to taxpayers impacted by federally declared disasters, such as hurricanes, wildfires, or flooding. These extensions give affected individuals time to recover, gather necessary records, and consult with a tax professional without worrying about immediate deadlines.

Take the stress out of crypto taxes: File for a tax return extension with CoinTracker's help

Managing crypto taxes can feel like a lot to handle. If you need more time, a tax extension could give you the flexibility you need. Whenever you’re ready to file, CoinTracker simplifies the process by helping you track your portfolio, calculate your tax liabilities, and organize your transaction history – all in one place.

Let CoinTracker help take the stress out of tax season. Get started with a free account today.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.