Should You File a Tax Extension?
There may be situations that arise where you are unable to complete your tax return on time. Rather than ignore the deadline that is set by the Internal Revenue Service and risk severe penalties, you should file a tax extension request in order to get more time to complete your return.
You Can Seek More Time
The IRS may grant a six-month extension for you to get your documentation together. You will need to complete the IRS Form 4868. This form can be filed electronically or through the mail. Any taxpayer can complete and submit the form on their own or request their tax preparer do so on their behalf.
There is a due date for filing an extension that you must adhere to in order to be eligible for the extension which is typically set for April 15th. Individuals and business entities can also file forms to request an extension of time.
For those living with special situations, including those servicing in a combat zone or considered to be working in hazardous duty locations, you can be granted an automatic extension of time. These special rules may also apply for taxpayers living outside of the United States or for those who are outside of the US at the time a six month time extension has expired. It may be best to consult with a stateside tax preparer or CPA to see if you qualify for special rules when living outside the U.S.
Understanding Extensions When You Owe Taxes
There is an important aspect taxpayers need to understand about requesting a time extension. The deadline after an extension for filing will come in October and you will not be facing penalties for filing late when the extension has been granted. However, if you are due to pay money to the IRS instead of anticipating a refund, you will be required to estimate the amount of money due to the IRS and make a payment by the original April 15 deadline.
Your estimated payment must be paid and your request for a time extension must be submitted to the IRS by the April 15th deadline or you will incur late fees and penalties. If you fail to file for more time, do not make a payment, or fail to file your return in a timely manner, you could face stiff penalties in addition to the balance you owe to the IRS.
It is also important for you to make a reasonable estimate of the amount due back to the IRS. In the event you estimate an amount that is very low and unreasonable, the IRS may not grant your time extension and you will face a late fee and subsequent penalties until the situation is taken care of properly. Interest will also accrue on the balance you owe. By paying less that an amount equal to 90% of the taxes you owe, a 0.5% penalty will be assessed on your account for each month that passes until the balance has been remitted in full.
Don’t Procrastinate at Tax Time
If you have a legitimate reason for requiring more time to file taxes (ie. missing documents), make sure to follow the rules and submit the request on time. If procrastination is the reason you are filing late, it is important to get reorganized in preparation for next year.
Many who are not keeping up with their tax information throughout the year may be missing out on important deductions that could save them money. When missing important deadlines and information, you may start a vicious cycle of fees and penalties that allows a significant balance to grow with the IRS. The government has a lot of power they can utilize to get the money owed to them, which include freezing financial assets and filing liens against your personal property.
Rather than risk all this legal red tape and the potential loss of assets, it makes sense to remain on top of your tax-related financials over the course of a year. Consult a certified tax professional to help you sort out the mess to keep you on track and ensure you are doing right by the IRS.
Simon Zhen is the senior research analyst for MyBankTracker. He is an expert on consumer banking products, bank innovations, and financial technology.
Simon has contributed and/or been quoted in major publications and outlets including Consumer Reports, American Banker, Yahoo Finance, U.S. News – World Report, The Huffington Post, Business Insider, Lifehacker, and AOL.com.