Should You File for a Tax Extension?
Tax Day is approaching — April 18 for most. But what if you are not ready to file your taxes?
Filing an extension is an option. You would not be alone if this is the path you choose.
Federal Tax Return Extensions
Taxpayers can get an automatic six-month extension (i.e., until Oct. 16) with one of the following options:
Having their tax preparer file the extension for them.
Using tax prep software or the IRS' FreeFile.
Filing Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return).
Certain taxpayers get an automatic two-month extension to file (i.e., until June 15). Taxpayers who are granted these extensions include:
U.S. citizens or residents who live outside the U.S. or Puerto Rico and whose main place of business or post of duty is outside the U.S. and Puerto Rico.
Active-duty military personnel outside the U.S. and Puerto Rico. Members of the armed forces serving in a combat zone or with qualifying service outside a combat zone are subject to special rules.
In addition, the IRS often extends tax filing deadlines for victims of major storms and other disasters. Consult IRS disaster relief announcements to determine whether you qualify for one of these extensions.
There is no penalty for filing for an extension to file, but there is an important caveat:
· Filing your tax return late is not the same as paying your taxes late.
· All taxes due must be paid by the return's due date.
· Taxes that are not paid may be subject to penalties and interest.
State Tax Return Extensions
Taxpayers who live in a state, like New York, that imposes state taxes must follow the rules for that state if they seek an extension. Some states offer automatic six-month extensions to all taxpayers, while others require a form to be filed. Note that any tax due must be paid by the filing date even if the taxpayer is granted an extension to file the return. It taxes are outstanding, penalties and interest might be incurred.
When filing for an extension makes sense.
Filing for an extension gives you more time to be sure all your ducks are in a row and that you have received all forms (W-2, 1099-Misc, 1099-NEC, K-1, 1042-S, 1095-C, etc.) as well as all trust and estate forms. This is important on many levels. For example, taxpayers who contribute to an IRA need this information so they can fund it with the right amount. This can help you save for retirement and save thousands of tax dollars at the same time.
So many people procrastinate — about 30 percent of us, according to the Department of Consumer Affairs — that it is easy to omit important information. For example, are you sure you gathered all relevant information about the home you sold? Have you included all medical expenses? Filing for an extension can give you the time you need to be sure you've taken all allowable deductions, credits and expenses.
When it doesn't.
Filing for an extension is not the right thing to do if you cannot pay the taxes you owe. There are other options:
Request a 60-to-120-day extension to pay. You will still pay penalties and interest, but at a lower rate.
Request an installment agreement, which allows you to pay a set amount per month until the tax is paid.
Consider paying your due tax with a credit card or a loan.
This is just an introduction; there are further details. Consult with us to help you determine the best option for you.