Tax Day seems to be suddenly staring you in the face.
You’ve known for a while that it’s been coming, but it still takes you by surprise.
If you can’t seem to track down the documentation that you need, or if you are uncertain that you will be able to file by Tax Day (April 17 in 2012), you may want to file for an extension.
Just about anyone can file for an extension using Form 4868. You can even file this form electronically. It’s convenient, and you get an extra six months to prepare your tax return.
However, it is important to note that it’s not as simple as filing some paperwork.
Here are some things you should know about filing a tax extension:
1. You Still Have to Pay What You Owe
An extension to file your tax return is not the same thing as an extension to pay what you owe. The IRS still expects you to pay what you owe by Tax Day. You can estimate what you think you will owe, and pay that, and file your Form 4868 by Tax Day. If you don’t pay what you owe, there will be penalties involved.
2. Paying 90% of Your Liability When You File for an Extension Can Help You Avoid Penalties
If you pay 90% of your tax liability by Tax Day, when you file your extension, you can avoid a failure to pay penalty. However, you have to make sure that the remaining 10% is paid when your extended tax return is filed on time.
3. The Penalty for Not Filing is Usually More than the Penalty for Not Paying
The IRS will charge you penalties when you miss certain tax deadlines.
Interestingly enough, the failure to file penalty is usually more than the failure to pay penalty. This means that if you can’t pay your taxes, but your return is done, you are better off arranging a payment plan with the IRS and making sure your paperwork is in. If your return won’t be ready, be sure to file for an extension to avoid the failure to file penalty.
4. A Tax Return Extension is Not an Amended Return
Make sure you understand the difference between a tax return extension and an amended return.
An amended return is one that you have made changes to. If there is a mistake on a past return that is already filed, you can file a 1040X with the appropriate documentation. A tax extension, though, is asking for more time to get your return together. It’s used for tax returns that haven’t been filed yet — and that will be filed later.
5. You Won’t Get a Refund Right Now
Even though you have to pay what you owe in taxes right now with a tax extension, you won’t get a refund immediately. If you think you are due a tax refund, you won’t actually get it until after you have filed your tax return.
So, if you file for an extension, it’s best if you get your paperwork done as soon as possible, rather than waiting until October. The faster you file your return, the faster you’ll get your refund. (Direct deposit helps as well.)
Do you know how many people file for extensions each year? Would be an interesting statistics to know.