To Extend, or Not To Extend?
As we approach April 18th (not April 15th, as explained here), one thing that may be beneficial to consider is whether or not you may need to file an extension. Filing for an extension is an option you may or may not know about, but there are definitely some things to keep in mind.
Anyone can file for an extension, for any reason
As long as you complete and send in the proper form in time (Form 4868), the IRS will automatically grant a six month extension to file.
You are only granted an extension to file; any taxes you owe are still due April 18th
Being granted an extension is not a license to be lazy – you still have to do some work to determine if you’ll owe taxes. The full amount of the taxes you eventually determine you owe are due on April 18th. The balance not paid on that date will be owed with penalties and interest when you do eventually file your return. You can send in a payment with your extension when you file; any amount you pay over what you eventually determine you owe will be refunded to you. On the flip side, any extra amount you should have paid will be due when you file, along with penalties and interest.
It may be better to file on time anyway
Since you’ll have to do some work to determine what you’ll owe on April 18th anyway, it may make more sense to go ahead and file on time. What’s a little extra work if it gets your taxes off your plate sooner rather than later?
You may be better off filing on time, then filing an amended return later
If you’re waiting on some errant forms (mortgage statements, 1099’s), you do have the option of filing on time, then filing an amended return later. Be aware, however, that if your amended return shows you owe more taxes than you originally paid, you’ll be on the hook for penalties and interest on the unpaid amount. If you’re still waiting on your W-2, you can still file on time, as long as you use Form 4852 in place of your W-2’s. This is not an optimal solution, as you’ll have to estimate your pay and taxes withheld, so you may still want to file an extension in that case.
An extension may benefit those with complicated returns who are short on time
An important thing to note is that an extension will allow you to take your time to properly prepare your taxes. If you rush to try to meet the April 18th deadline, you not prepare your return accurately. Math errors and data entry errors are the most common reasons a return is flagged by the IRS for audit – anything that reduces this possibility is a good thing!
Even if you can’t pay your taxes on time, it’s better to at least file the extension
You’ll still owe penalties and interest, but you’ll avoid the additional Failure to File penalty. And, of course, it’s better to pay as much as you can by the due date to reduce the penalties and interest as much as you can.