With the tax deadline looming, the annual scramble for receipts and write-offs has begun, as would-be procrastinators race to file their state and federal returns.

If you are considering filing an extension because you cannot find crucial information, or because you refuse to be rushed, beware of the common misconception that you are putting off payments along with the paperwork.

"The extension buys you more time," said Art Ford, a certified public accountant and a certified financial planner at Sullivan Bille, a Tewksbury, Mass. firm. "But it doesn't give you more time for payments."

The bottom line, Ford said, is that if you are likely to owe Uncle Sam a sizable sum, filing an extension is not for you, since your tax bill could accrue considerable interest if you underestimate how much you owe.

Ford said his clients often are surprised to find how quickly the penalty charges can build.

"It's not criminal," Ford said, referring to clients who file extensions, knowing they owe thousands of dollars. "But it could be expensive."

Automatic Four-Month Extension

The IRS will grant automatic four-month extensions, but tax payers must complete and file Form 4868 (Application for Automatic Extension) by April 17. The state extension will be granted automatically when you file the form.

Those needing an additional two months can request a second extension by filing Form 2688 (Application for Additional Extension). But that form must be filed by August 15, and tax payers must explain why they're requesting more time. An extension of more than 6 months will not be approved if you are in the United States

An important thing to note is that if even if you receive an extension, you must estimate your tax liability and pay that sum. If you can't pay the full amount, you can still receive an extension, but you'll owe interest on the unpaid amount.

You also may be charged a penalty for paying your taxes late unless you have reasonable cause for being late. Interest and penalties are charged from the original due date of the return, which, for most taxpayers, is April 17.

Sometimes, Filing an Extension is Smart

But there is no shame in filing for an extension under the right circumstances. For instance, taxpayers needing cash in the short term may find that the extension frees up needed funds.

Take the case of a young doctor, four years into her practice and ready to purchase a small building that will serve as her office. She expects to close on the property in mid-April.

She'd like to contribute about $15,000 to her retirement plan, but she can't afford to do that before April 15, and still buy the building.

As a result, Ford plans to file an extension on her behalf, and the doctor will use her available cash for the building, and spend the next six months saving for retirement.

Perhaps your financial life is simpler, and you're expecting a tidy refund from the IRS. What you lose by filing an extension is the six-months worth of earnings you would have received if that money had been directed to a mutual fund or some other investment back in the spring.

The purpose of an extension is to give tax payers more time to file accurate and thorough returns. But Lyle Benson of L.K. Benson and Co. in Baltimore, discourages his mostly high net-worth clients from filing extensions, since they can't delay their tax payments.

Tax payers who don't pay at least 90 percent of their tax bill will get slapped with penalties and interest for the underpaid amount. The penalty starts at 1/2 percent per month and can go up to 1 percent per month of the amount that's owed.

Tax payers who don't file their returns by April 17 or file a request for an extension, could face penalties of 5 percent per month of the tax due, up to 25 percent. The IRS also charges interest on the tax owed.

Despite such warnings, Benson said many of his clients do file for extensions while they wait for corporate returns or reports to show their stock earnings.

"They might be missing information, waiting for information from private partnerships or corporations,'' Benson said. "Typically it is because the companies haven't gotten it together yet. And those can be big numbers."