Traditionally, federal tax returns are due on April 15 or the first business day thereafter. However, the IRS does grant you an automatic six-month extension to file your taxes every year, as long as you complete Form 4868.
Common reasons for requesting an extension include a lack of organization, unanticipated events or tax planning purposes. Even if you obtain an extension to file, you must still pay your income tax in full by the April deadline.
Incomplete tax documentation
Since the federal government will grant you an extension just for asking, you can take advantage of this additional time to ensure your return is accurate. For example, if you’ve lost the W-2 your employer sent you and are waiting for a duplicate to arrive, you are better off filing the extension and waiting for the W-2. If you just estimate your income, it’s likely you will have to make corrections in the future anyway.
Unexpected life events
Even if you intend to file your tax return by the April deadline, sometimes life events interfere with your ability to file. If you have a death or illness in your family or fall victim to a natural disaster, you may be unable to file on time. While the IRS does not need an explanation when you apply for an extension, there is no reason to prepare your tax return in a rush if other issues keep you from focusing on it.
Sometimes taking the extra time to file your return may be a strategic decision to help you obtain more tax savings. For example, if you convert your traditional IRA into a Roth IRA, you must pay tax on the entire account balance at the time of conversion. However, the IRS allows you to “recharacterize” your Roth IRA back into a traditional IRA at any time before you file your tax return, which allows you to avoid paying tax on the balance. Since this conversion may take some time, a filing extension can eliminate your obligation to pay the tax.
Regardless of when you file your tax return, if you do not pay the tax you owe by the original tax filing deadline, the IRS penalties can be severe. The IRS will charge you one-half percent each month on the amount of tax you still owe after the deadline.
If you fail to file a return altogether by the extension date, the IRS penalty increases to 5 percent per month, for a maximum penalty of 25 percent. An easy way to avoid the penalty is to make a tax payment with your debit card before the filing deadline. When you do, this payment method serves as your extension application and you will not have to file Form 4868.
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If you need more tax advice, or, wish to file an extension let us know.
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