- By Bob Goren
- Published 12/15/2011
Would you like more time to fill out your IRS forms? You aren’t alone. Fortunately, the government has made it easy to file an extension, and about ten million Americans took advantage of this option last year.
This guide gives you a useful overview of tax extensions to help you get extra preparation time for this tax season.
Tax Return Extensions Explained
In IRS jargon, an “extension” is additional time granted for filing your tax papers. It isn’t an extension of time to pay the taxes you owe however – everybody’s taxes are due on April 17, 2012.
Getting an extension significantly reduces the financial penalties associated with late paperwork and helps you avoid legal trouble with the IRS. The penalty assessed for filing late with an extension is 0.5% of taxes owed per month plus interest. The penalties for filing late without an extension are much higher – a person who simply doesn’t file will first be charged an extra 5% per month plus interest. This penalty can climb 5% every month and top out at 25% of taxes owed plus interest. The worst case scenario adds on a $25,000 fine for tax evasion plus jail time.
If you need extra time to pay your taxes, you shouldn’t apply for an extension. Instead, you should file on time and pay as much as possible. You’ll then get a notice of the balance that’s still due in the mail. From there, you can work out a payment plan online with Form 9465, the Installment Agreement Request. Or, if payments seem impossible, you can call an IRS agent at 1-800-829-1040 to discuss your options.
Tax Extension Eligibility
You can file an extension for nearly any reason, including simple procrastination, since the IRS does not ask for explanations. People tend to file extensions because they’re weighing a variety of tax options for their investments, they want more time to work on Form 709 for gift taxes, or they’re overburdened by personal issues.
In addition, members of the military and other Americans who live and work overseas automatically get a two-month extension on filing. They can also apply for additional time -IRS Publication 54 provides details on this.
Extensions are not available for taxpayers on probation however, as filing for extra time could void their special arrangements made with the IRS.
Calculating the Tax Amount that You Owe
You can get a good estimate of your return by using online tax software. Last year’s tax return might also help you determine this year’s payment, although major life changes such as salary adjustments, paying for college and buying or selling real estate would have a big impact.
It’s important to make a good estimate of what you owe and pay as much as possible. It could even be strategic to overpay your estimate. Otherwise, you could end up with interest payments if a discrepancy comes to light.
How to File for an Extension
Filing an extension is actually straightforward. Basically, you’ll submit IRS Form 4868. By submitting this form, you’ll automatically extend your filing deadline by five or six months i.e. businesses get five months and individuals get six months.
You can easily download Form 4868 from the IRS website or get a copy from your local IRS office. You can also order IRS forms by calling 1-800-TAX-FORM (800-829-3676). Phone requests are normally fulfilled within 7-15 business days.
You’ll need last year’s tax return in order to file an extension. This is for your own protection, since you’ll provide information from the tax return to verify your identity. If filing jointly, you’ll also need your spouse’s social security number.
Completing the form is simple – it only takes about fifteen minutes. You’ll write your tax estimate, the amount paid and your estimated balance due.
Once you’re done, you can mail a paper copy of Form 4868 or file your extension online with e-file, a free system. If you don’t feel comfortable using e-file yourself, a tax professional can do it for you.
Filing an extension online is advantageous because the IRS gives you a confirmation number immediately, whereas people who file by paper only hear from the IRS if there’s a problem. Also, filing online gives you the option of making electronic payments with your credit card or checking account. You can pay some or all of your estimated tax that is due.
If you prefer to pay with a paper check or money order, then you should mail a paper form in addition to filing electronically. Addresses for regional IRS offices are provided on page 4 of the form. The government also has a list of recommended couriers.
This guide shows that it’s easy to get an extension for filing your IRS forms. In many cases, this is a smart option to help guarantee the accuracy of your return. But remember that getting an extension doesn’t delay your payment due date. If you cannot pay your taxes, you should contact the IRS as soon as possible.
About the Author: Bob Goren is an accountant and independent advisor on completing IRS forms successfully.