Working late on tax returns? Here's how to file for an extension.
It's tax day, and if you're not done, just file for an extension instead of rushing to finish, experts say. It's easy to get an extension, and the penalty for not filing anything at all is high.
On Monday â€“ tax day â€“ at 10 a.m. people were lugging in boxes of records so Dallas CPA Bill Dendy could file their taxes.
His reaction: â€śOh, no!â€ť
â€śItâ€™s very difficult to do the return accurately,â€ť he says. â€śBut there is time to file for an extension.â€ť
Indeed, if you are planning to rush home from work Monday to try to beat the midnight filing deadline, consider asking for an extension instead. Accountants and even the Internal Revenue Service say itâ€™s important to get the return done accurately even if it means missing the deadline. However, asking for another six months does not mean that you donâ€™t owe the IRS money, if you havenâ€™t paid enough.
â€śYou are still required to pay what you owe by April 15,â€ť says Dean Patterson, a spokesman for the IRS. â€śThe extension is just to get your return in order.â€ť
Â In other words, if you think you are going to owe money to Uncle Sam, youâ€™re better off paying an estimated tax. Otherwise, if you donâ€™t pay the estimated tax, you could ultimately end up paying the tax plus interest and a penalty.
How does this work?
Filing for an extension (form 4868) can be done electronically through the Free File link on IRS.gov, no matter what a householdâ€™s income.
When filing for an extension, the IRS requires filers to give a good ballpark estimate of taxes owed. If the taxpayer expects to owe the government, they need to make an estimated payment when asking for an extension.
â€śWe understand the filers may not have all their records,â€ť says Eric Smith, another IRS spokesman. â€śBut if they hit it pretty well, they wonâ€™t owe any interest or late penalties.â€ť
Anyone filing for an extension will have lots of company. According to the IRS, last year, some 10.7 million Americans filed for more time, a little bit more than the average of 10 million the previous couple of years. Last year, about half the requests for extensions were filed electronically.
Filing for an extension is important even if the taxpayer does not know exactly whether they will be getting a refund or paying the government. The penalty for failure to file is normally 5 percent per month on the unpaid balance. The penalty for the failure to pay the taxes due is 0.5 percent per month.
â€śItâ€™s a pretty big difference and you can get an extension just for the asking,â€ť says Mr. Dendy.
Over the years, the IRS has become more generous with extensions. Until the late 1970s, the extension was only two months. Then, around 1979, the extension was extended to four months. Around 2006, the IRS decided to give a six-month extension.
Taxpayers donâ€™t even need a written reason to get the six-month delay. However, Dendy says a good reason is to make sure the return is done accurately. In a rush to get the return completed, he says it is easy to miss a piece of paper.
â€śMaybe a form 1099 gets lost or did not get to you,â€ť says Dendy. â€śBut that does not mean it did not get to the IRS, and so you could have unreported income.â€ť
Unreported income can be a red flag for the IRS, which could result in an audit, he says.
After an initial extension, a taxpayer can still get more time â€śfor cause,â€ť says Mr. Smith. He estimates that probably one-third of people who have requested an extension, ask for a second one as well.
â€śMost were granted if there were a good reason,â€ť says Smith, who says that the IRS grants the additional time on a case-by-case basis. Hardship, for example, would be a good reason to grant an additional extension. Dendy says that some of his requests for extensions are the result of real estate investment trusts delivering documents to their investors late. In addition, he says, the IRS was late in getting some tax documents done. And some people started doing their taxes and suddenly realized they were far more complex than expected and they needed help, he adds.
But, he says, the No. 1 reason for requests for extensions is taxpayer procrastination.
â€śI had one client who said the deadline just sort of crept up on him,â€ť he says. â€śHe lives in the East and the weatherâ€™s been so cold, he said it just did not feel like tax season.â€ť
As far as the IRS is concerned, thatâ€™s just fine, too. Anyone can get an extension.