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What Does Extending Your Taxes Mean to You?

Introduction

As the tax filing deadline is actually quickly approaching, many procrastinators in addition to also those who legitimately are just not ready to file their returns become stressed out in addition to also frantic, trying to meet what may virtually be an impossible deadline. Many could rather rush to get their returns prepared than file an extension. Common concerns include, although are not limited to, being flagged as a late filer, being assessed penalties, or being more likely to be audited. If you are one of these individuals, I desire of which I can put your mind at ease in addition to also inform you of what the item genuinely means to extend your tax return in addition to also the benefits of doing so.

A few notes before getting started off:

  • This particular article is actually written assuming a tax year of which is actually the same as the calendar year, which is actually the case for most individual taxpayers.
  • If a tax deadline noted falls on a holiday or weekend, the deadline is actually actually the next business day.
  • The focus of This particular article is actually on the filing of federal individual extensions except where noted otherwise.
  • “Tax professional” as opposed to “tax preparer” is actually referred to in This particular article. My definition of “tax professional” is actually someone who has extensive knowledge, education, in addition to also experience in taxation in addition to also can provide tax consultation in addition to also planning services in addition to preparing returns. Two commonly recognized credentials held by tax professionals include CPA (Certified Public Accountant) in addition to also EA (Enrolled Agent). CPAs in addition to also EAs are by no means the only tax professionals out there in addition to also not all CPAs do tax-related work.

With those preliminary notes out of the way, I will at This particular point discuss what you should know about extensions.

What is actually an extension?

First in addition to also foremost, the item is actually important to know of which an extension is actually an extension of time to file an income tax return, not an extension of time to pay the tax due. Unfortunately, many taxpayers miss the part about the item not being an extension of time to pay, perhaps due to wishful thinking.

There are two federal individual income tax extensions of which can be filed. The first extension, which is actually “automatic,” is actually due by the April 15th tax deadline in addition to also is actually a four month extension of time to file. Thus, if you file This particular first “automatic” extension, you will have until August 15th to file your income tax return. Your best estimate of the tax of which will be due with the actual return is actually still due by April 15th.

As for the first extension being “automatic,” of which does not mean the item just happens – you need to actually file the extension. There are various ways to do so which are convenient in addition to also are discussed later. The reason the item is actually referred to as “automatic” is actually of which you do not need to provide an explanation for why you need additional time to file.

The second extension is actually not “automatic” like the first one. If you cannot complete your returns by the August 15th first extension deadline, you can “apply” for yet another two months. The second extension is actually considered an “application” because you need to provide a Great reason why you need the additional two months to file. You need to demonstrate of which you made a reasonable effort to get your returns completed within the first four month extension period or of which you had extenuating circumstances. If the reason is actually merely for your convenience, your request can be denied. If your application is actually denied, your return will be due immediately or within a 10-day grace period. If you did not timely file a first extension, a second extension will only be approved in cases of undue hardship.

Between the two extensions, of which gives you up to six months additional time to file beyond the April 15th tax filing deadline. Six months is actually generally the maximum total time a return can be extended by law.

Why should I extend?

The Internal Revenue Service prefers of which you file a complete in addition to also accurate return. A return you have to rush through, do not have all information for, or make estimates of figures for is actually unlikely to be complete in addition to also accurate. Thus, the item is actually better to file an extension if you are approaching April 15th in addition to also you do not have all information needed or otherwise cannot file complete in addition to also accurate returns.

If you use a tax professional in addition to also you are getting your tax information to him or her just a few weeks or so before April 15th, do not be surprised if he or she indicates an extension will need to be filed. You are more likely to have a complete in addition to also accurate return if your tax professional is actually not trying to rush to make the April 15th deadline.

A few more comments for those of you who use tax professionals. If the item is actually approaching the tax deadline in addition to also you have not yet contacted your tax professional, do not be surprised if he or she is actually unable to speak with you when you call his or her office. Also, do not assume of which just because you used his or her services last year they will file an extension for you without you specifically requesting the item. Tax professionals are very busy dealing with many clients in addition to also working long hours all of tax season in addition to also they get even busier as April 15th approaches. Moving forward, you should consider getting in contact with your tax professional’s office well in advance of the tax deadline to determine what he or she needs to file an extension, if necessary, in addition to also prepare your taxes.

In addition to having a complete in addition to also accurate return, there are certain planning opportunities of which can be taken advantage of if you or your tax professional is actually not forced to rush through your return. One example is actually funding certain retirement plans such as SEPs in addition to also Keogh Plans – these can be funded for the prior year through the extended deadline of the return of which falls inside the current year. Some plans, such as a SEP, can actually be established for the prior year up through the extended due date of the tax return. the item is actually important to note of which traditional in addition to also Roth IRAs need to be funded by April 15th to qualify as contributions for the prior year. For more information on such planning opportunities for the year just past as well as the current in addition to also future years, you should consult with your tax professional.

What are common concerns over extending?

As referenced earlier, many individuals are adverse to even the idea of extending due to concerns such as being “flagged” as a late filer, being assessed penalties, or being more likely to be audited. Filing an extension in in addition to also of itself is actually not going to raise any “red flags” or cause problems as long as your extension is actually timely filed in addition to also the tax due is actually paid by April 15th. As for being audited, you are more likely to be audited if your return is actually incomplete, includes estimated figures, or is actually inaccurate.

Another concern individuals have is actually of which the item will cost them more to file an extension. The IRS does not charge for filing an extension. Your tax professional may charge you for doing so, although the fees charged most likely will be far outweighed by the benefits of the return being complete in addition to also accurate. Incomplete in addition to also/or inaccurate returns can result in you being contacted by the IRS in addition to also generally require of which an amended return be filed. Your tax professional will likely charge you for preparing an amended return. If additional tax is actually due, penalties in addition to also interest may be assessed. A complete in addition to also accurate return is actually much less likely to result in any correspondence by the IRS. Additionally, the item includes an accurate tax liability, which means lower taxes or reduced penalties in addition to also interest as related to an understated tax liability. Like with many things in life, the item is actually better to do something right initially as there is actually more time, effort, in addition to also expense associated with having to correct something later.

Yet another reason of which some individuals do not want to extend is actually because they are inside the process of buying a brand new home or refinancing in addition to also their lender is actually requesting a copy of their tax return. Many lenders will accept a copy of an extension along with copies of documents substantiating income (W-2s, 1099s, K-1s, etc.) in addition to also copies of the prior year tax returns.

What information is actually needed to file an extension?

You will need your general taxpayer information, which includes your name, name of your spouse if married in addition to also filing a joint extension, your social security number, your spouse’s social security number (if applicable), in addition to also your complete address. To avoid potential delays inside the processing of your extension, special attention is actually required if any of the following apply: your name has changed due to marriage, divorce, etc.; your address has changed since you last filed a tax return; or you want to have correspondence related to your extension sent to your tax professional or otherwise. You should refer to the instructions for the extension form to properly address any of these items.

There is actually not much different information needed. The items needed for the tax year of which the extension is actually for are an estimate of your total tax liability in addition to also the total tax paid. The estimate of the total tax liability is actually the more difficult of the two. You need to come up with your best estimate of what the tax liability is actually. The IRS instructions for the completion of Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return” clearly state: “Make your estimate as accurate as you can with the information you have. If we later find of which the estimate was not reasonable, the extension will be null in addition to also void.” If of which were to be the case, your return could be considered late. A late filed return is actually subject to late filing in addition to also late payment penalties in addition to also interest.

How do I file an extension in addition to also, if applicable, pay the (estimated) tax due?

Either you or your tax professional can prepare in addition to also file your extension. The methods for filing the item include e-file by phone, e-file by computer, or filing a completed paper Form 4868. Regardless of who is actually going to prepare in addition to also file your extension, the information discussed inside the previous section will be needed. Thus, if you use a tax professional, you need to get in touch with him or her in advance of the tax deadline to ensure of which he or she has of which information.

E-file by phone is actually a very convenient option if you are going to file your own extension. The Form 4868 in addition to also its instructions can be easily downloaded by the IRS’ website. After reviewing the instructions for the form, use Form 4868 as a worksheet in addition to also then call the toll free number inside the instructions. You will be prompted for the information by the completed form in addition to also given a confirmation number at the conclusion of the call. In order to e-file by phone, you must have filed a federal return for the prior tax year.

As for paying the (estimated) amount due, you can do so via electronic funds withdrawal (EFT, by a checking or savings account), credit card, or check. The EFT option can be used if you e-file by phone or e-file by computer. You will need to enter additional information when filing the extension to include AGI (Adjusted Gross Income) by your prior year tax return in addition to also the routing in addition to also account numbers for your bank account. Payment by credit card can be done via one of several service providers, each of which charge a convenience fee based on the amount of the tax payment being made. Payment by check can be made if you e-file by phone, e-file by computer, or file a paper extension form. More detail about these payment options is actually included inside the instructions for Form 4868.

the item should be noted of which if you are a taxpayer of which makes or should be creating estimated tax payments, you should compute in addition to also timely make those payments for the current year even if you filed an extension. The federal income tax system is actually a “pay as you go” system in addition to also if you are self-employed or otherwise have income of which results in a tax liability of which is actually not paid via withholding, you may be required to make estimated tax payments throughout the year. If you are not sure if This particular applies to you, the item is actually recommended of which you research This particular topic or consult having a tax professional.

For further information about filing a second extension, please refer to the instructions for Form 2688, “Application for Additional Extension of Time to File U.S. Individual Income Tax Return” which can be easily downloaded by the IRS website as http://www.irs.gov.

What about state, local, in addition to also different income tax returns?

Some states will accept the federal extension while others require of which you file an extension document with them. Ohio accepts the federal extension in addition to also does not require of which you send them a copy of the item, though you do need to send inside the tax due, if applicable, by the April 15th deadline. If you live in a state with municipal or different local income taxes, you may need to file an extension with the locality (or localities) of which you have a filing responsibility with. Further discussion about state in addition to also municipal filing requirements are beyond the scope of This particular article as they vary by state to state. Check with the respective department(s) of taxation or your tax professional for more detail. Like with the federal extension, you generally need to pay any state or local tax due at the time the extension is actually filed.

In Conclusion

Whether you prepare your own taxes or work having a tax professional, I desire of which you have a better understanding of what an extension is actually, when the item should be considered, in addition to also what is actually involved in completing in addition to also filing one. If the item is actually close to the April 15th filing deadline in addition to also you have not finished or even started off preparing your returns, you should consider filing an extension. This particular will allow additional time to ensure of which the returns are complete in addition to also accurate in addition to also, in turn, should reduce the stress associated with filing your taxes.



Source by Tiffany J. Morisue

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