Sometimes life happens to all of us and things could get in the way of our most sincere intentions. You might find yourself unable to submit your tax return on time because you are simply behind on your to-do list. Or, you might already be in debt and delay filing your return because you can’t pay your next tax bill. Whatever the reason, you have a better option than not filing the return.
If you are not ready to file your tax return on April 15, you can apply for an extension, and the sooner you do it, the better the outcome. The application process is quick and easy. It will buy you some time and help you avoid various penalties for filing and paying late. However, before filing for an extension, let’s get clear on what an extension is and go over its process to steer you away from common mistakes and unnecessary stress.
As soon as you know that you need more time to collect all the documents to file your tax return, you should file for an extension right away. It will get you another six months to file. Your new, extended tax return deadline will be October 15.
Requesting an extension is a simple procedure. All you have to do is fill out and submit Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. An extension request is free of charge, is typically granted automatically to all taxpayers that apply, and requires no specific qualifications.
You have several options when it comes to submitting your extension request form. You can either send the paper version by mail or file online through the IRS website or your tax software program, such as TurboTax.
If you decide to go the traditional route and submit your extension request via snail mail, make sure to obtain the proof of mailing and keep it with your tax records in case of an unpredicted situation. Proof of mailing will come in handy should your mail get lost or accidentally misplaced and will help you avoid tax complications and penalties.
Most tax-preparation software programs allow you to file for an extension, as well. If you are not planning on using tax software, you can also submit your form on the IRS website. For taxpayers with $66,000 or less of adjusted gross income, the IRS gives access to free tax-preparation software from 12 different software companies. The IRS makes this option possible by partnering with the Free File Alliance, a nonprofit organization. However, anyone can file for an extension through the IRS website, regardless of their income level.
It’s important to note that the Free File is only accessible during specific times of the year, so if you need more time to file your return, make sure to submit an extension request before the April due date to avoid a late filing fee.
Many taxpayers assume that by filing an extension they also get more time to repay their tax debt. However, you need to understand that an extension doesn’t give you more time to pay your taxes. You only get more time to file your return. In other words, even though your return is not complete before April 15 and is now due by October 15, your taxes are still due in April. At the time of filing for an extension, you will be asked to estimate how much you owe in taxes and pay as much as you can by the deadline. Otherwise, you will incur interest and penalties for late payment.
You might be able to avoid late payment fees by paying at least 90% of your balance in April and paying the remainder when you file your return. You do need to remember that interest will continue to accumulate on any unpaid balance. Currently, the IRS charges 5% in yearly interest.
You also should know that the penalty for not filing your tax return is 10 times greater than the penalty for not paying. For every month of being late with your payment, the IRS will charge you 0.5% of your balance. The penalty for not filing your return is 5% of the balance, which could go up to 25%.
You might be able to avoid these fees if you can prove to the IRS that you had a reasonable cause to not file or pay your taxes. However, you shouldn’t count on this possibility as it is very difficult to do.
When you ask for an extension, your reputation with the IRS doesn’t suffer and you won’t get audited all of a sudden. Audits are typically assigned for taxpayers with completed returns. As such, you are actually delaying the possibility of an audit.
Some individuals don’t have to worry about filing their tax returns at all. Several categories of taxpayers are eligible for an automatic tax return extension.
As you now realize, filing for an extension is a quick and easy procedure which could give you a chance to get your records together and file your return properly. The most important takeaway is that not filing your return is more detrimental than not paying your taxes on time.
If you’ve accumulated high tax debt and are struggling to pay it off, consider consulting with tax debt professionals at Solvable. With our debt management tools and comprehensive debt education, we will help you get back on track and start enjoying life again.