Filling out all your tax forms can be a time-consuming task. If you are short on time, you have the option of filing a tax extension. Once you do, it will give you another six months (until October 16) to get accurate paperwork to the Internal Revenue Service (IRS).
Asking for a tax return extension is easy. All you need to do is to send Form 4868 to the IRS with your tax paperwork. An excuse is unnecessary, enabling you to file for an extension for any reason. The forms are usually approved by the IRS automatically—unless the data, such as your Social Security number, is incorrect.
You May Not Need to File an Extension
Some groups of people are automatically granted an extension, according to TheBalanceMoney, and do not need to file Form 4868 to get it. Military personnel serving out of the United States and citizens not living in the United States or Puerto Rico who conduct most of their business outside those areas are also automatically given an extension.Automatic tax extensions were given to people that experienced disasters in Alabama, Georgia, and California. To learn whether you qualify, consult the website at IRS Disaster Relief.
If you are going to file a tax extension form, it needs to be in the IRS office before April 18 of this year. At the same time, you need to fill in your tax forms as best as you can. Estimate the data you are unsure of because the IRS says there is a 5 percent failure to file fee for every month it is late. This fee maxes out at 25 percent of the overdue taxes. For 2022 taxes, the minimum charged will be $435 or 100 percent of the taxes—whichever is less.
If you are sure you will receive a tax refund, you will not receive a late-filing penalty even if you file late.
You Must Still Pay the Taxes
The one thing that many people do not understand about requesting a tax extension is that you must also submit your estimated taxes and make a payment before the tax-filing deadline. If you have a business and make quarterly reports, you need to estimate your taxes for that quarter and submit it by your regular tax time.A tax extension can give you several benefits, but there are some downsides. Although it gives you six more months to calculate your taxes, you may forget about some possible tax deductions during that time.
Yahoo mentions that if you file an extension and send in your paperwork but send no payment, you can still expect to pay fees for late payments.
Here are some other pros and cons of asking for a federal tax extension.
You Still Must Estimate and Pay Your Taxes
You cannot put a random number on your tax forms and hope that the IRS will not double-check them. Form 4868 will give you an extension to file your paperwork, but it does not extend your time to pay the taxes owed.You May Need to Pay a Penalty
There is a tax penalty if you do not pay enough with your tax forms—even if you have a tax deadline extended. It will need to be in when your normal taxes are due. You may be able to avoid the penalty if you pay at least 90 percent of the tax bill, but the IRS says that you will still pay a late fee for the balance. The fee is half of 1 percent for the first 10 days it is late, and 1 percent for every month after that.Your Refund Check Will Be Preserved
If you are expecting a refund check, filing an extension will not prevent you from getting it. TheBalanceMoney says that there is a three-year statute of limitations on refunds; so after that, you will not receive one. Filing a tax extension will also move the starting period of those three years forward by six months.Although you will not lose your refund, you will have to wait for it until your paperwork is complete and sent in. If you were hoping to get it sooner to pay some bills; filing an extension will only delay it.
You Can Ensure a More Accurate Tax Return
Delaying to file your complete tax forms could enable you to ensure greater accuracy by taking more time to avoid mistakes and omissions. It could help you get all the deductions and credits to which you are entitled.If you use a professional tax preparer or accountant, they will have more time to go over the details of your taxes and avoid mistakes. They are most busy and rushed from January to tax day, possibly causing them to make more mistakes.
You Are a Seasonal Worker and Need More Time
You may be someone that works a seasonal job, such as teachers, and are normally very busy before tax time. In that case, you may want to be more relaxed when filling out your tax forms and do them during the summer when you are not working. In that case, filing a tax extension could be just what you need.Some tax professionals advise that you go ahead and take the time to fill out your tax forms now and get it over with. It will be one less thing on your mind. Filling out those forms will not be any easier because you will still need to gather all your tax papers together and do the math. Getting it out of the way also enables you to have less stress.
If you owe taxes and do not see how you can afford to pay them, the IRS has some solutions. It offers several tax-payment options, and you may be able to arrange a payment plan with them. Pay what you can by tax time to reduce the interest and penalty fees that will still be added.
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