The Benefits of a Tax Extension
Extend the Filing Deadline of Your Personal Tax Return
Although the due date to pay your individual income taxes is April 15, you can request more time to file your tax return. If you file a tax extension, you can get an extra 6 months to file your full return.
Once you obtain an extension, you will have until October 15 to file your tax return. You can file your return any time before the extended deadline – even before April 15 if you want. Many taxpayers opt to file an extension just in case, to avoid the chaos of tax season and have some peace of mind.
If you are unsure whether you’ll be able to file on time this year, you should consider getting a tax extension. It’s easy to request and it can be done online in just a few minutes. Plus, a tax extension means that you will avoid the IRS’ late filing penalties.
Here are the main benefits of a tax extension:
It’s Easy and Automatic
To request a personal tax extension, you must use IRS Form 4868. This form needs to be filed with the IRS by the original deadline of your tax return (usually April 15).
Form 4868 is very simple to fill out. First, you provide your personal identifying information (including your name, address, and Social Security Number). Next, you provide an estimate of your tax due – this is calculated by taking your total tax liability for the year and subtracting any tax payments you already made (through Federal withholding or estimated taxes). Lastly, you will decide if you are making a tax payment with your extension request.
Tax extensions are automatic, which means you don’t have to sign the form or give a reason for your request. Your extension will be approved as long as you properly fill out Form 4868 and submit it on time.
You can e-file Form 4868 online or mail a paper form to the IRS. If you e-file, you will receive email confirmation as soon as your extension is IRS-approved. On the other hand, if you file by paper, you will only be notified if your extension is denied.
Reduce Stress by Getting Extra Time
The majority of taxpayers try to file on time, but sometimes life events simply get in the way. Whether you’re dealing with personal issues at home, waiting for financial statements to arrive, or you just want to avoid the long lines at the Post Office, you can alleviate the stress by filing an extension. Nearly everyone is eligible to get a tax extension, no matter what your reason is for needing more time.
It’s always recommended that you request an extension rather than filing a rushed or incomplete tax return. It’s in your best interest to get an extension if you suspect you won’t be able to file your return on time.
A tax extension also gives you time to ensure you are claiming every tax credit and tax deduction that you’re entitled to. You will have 6 more months to check your eligibility for tax breaks – and because tax laws are constantly changing, you might even discover that you qualify for a new tax break.
Save Yourself from Filing Penalties
If you file a tax extension, you will not be subject to Federal filing penalties. The combined IRS penalty for late filing and payment is 5% of your tax balance, charged each month (or part of a month) that your tax remains unpaid. If you file an extension, that penalty decreases to 0.5% per month.
It is important to understand that a tax extension gives you more time to file, but it does not give you more time to pay. You are still expected to pay your tax liability on or before April 15. However, if you owe taxes and you request an extension, you are not required to pay your taxes in order for your extension to be approved.
Any tax not paid by April 15 will be subject to late payment penalties and interest. The late payment penalty is 0.5% of your tax balance, charged each month (or part of a month) that your tax goes unpaid. The interest charged on your outstanding tax is compounded daily and has a current rate of 3%.
Lessen Your Risk for an Audit
Many tax experts believe that an extension can actually reduce your chances of being audited. This is because you would be filing your return outside of the normal tax season. While the IRS doesn’t officially confirm it, the agency can realistically only conduct a certain number of tax audits each year. The majority of audits are selected by the end of April, after most taxpayers have filed their returns. If you get a tax extension and file your return several months after the original deadline, it is more likely that the IRS will have already filled their audit quota. Although you should remember that the best way to reduce the chance of an audit is to file an accurate and complete tax return.