For many Americans, Tax Day has a way of creeping up on us. If you need a bit more time to file your tax returns, you can request an extension and do it in 6 months to October 15, 2021. It really doesn’t matter why you need more time — whether you’re on vacation, preparing for exams, or simply not currently up to the task, you can still avoid late-filing or late payment penalties. However, it’s important to keep in mind that an extension only allows you to file your return at a later date. To avoid paying interest and penalties, you may still have to estimate how much you owe in taxes and make a payment. Getting an extension is easier than you might think, but is it always a wise move? Here’s what you need to know, from how to file an extension to the pros and cons of going that route.
What is a Tax Extension?
When a lot of Americans think of a tax extension, they assume it’s a deferral on the tax amount owed and not on the return. This confusion requires attention to what a tax extension is and what it’s not. A tax extension allows you to delay filing your paperwork by 6 months, but you still have to meet your tax obligations on time. Tax payments are typically due on April 15 or the next business day if it’s a holiday or weekend. If you’ll be getting a refund, then you don’t have to worry about paying.
How to File an Extension
Now that you know what a tax extension is and isn’t, you may be asking, “how do I file a tax extension?” You can download the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (Form 4868) from the IRS website. You then have to fill out your name, address, social security number, and other identification information. The form comes with a list of addresses to which you can send the form. If you’ve calculated your tax bill, you can write a check and mail it with the form.
You can also file your tax extension by filing Form 4868 via the electronic filing program. If your tax situation is a bit complex, you can seek help from tax professionals, otherwise it’s a relatively simple affair using free or commercial tax software. You’ll receive a confirmation code acknowledging that you’ve filed an extension.
Why Has My Tax Extension Been Denied?
The IRS automatically honors tax extensions without you even having to provide any substantive reasons why you need to postpone filing your return. Simply fill the form, but double-check that you’ve done so correctly. If you enter erroneous information or forget to sign the form, the IRS might deny your application request. You should also make sure to file your extension request on or before April 15. If you send your Form 4868 by mail, do so using certified mail with a return receipt, so you can show that the IRS received it on time.
Advantages of Filing a Tax Extension
While you may think that you need to come up with a pretty convincing reason why you need an extension, the truth is you don’t have to explain at all. Whether you’re missing some paperwork or out having fun on a vacation, you only need to properly file your extension request. Whatever the case, there are some advantages to filing an extension.
For a start, you can dodge the 5% late penalty that the IRS charges for each month you file your tax return late without requesting an extension. In case you also haven’t paid, there’s also a monthly 0.5% late payment penalty up to 25%. If you ask for an extension, you only have to deal with one penalty until the October 15 extended deadline.
If you’re missing some documents or need extra time to review your tax situation, requesting an extension can help you improve the accuracy of your return. You can use the extra time to consult with professionals whether you’re eligible to take any deductions and credits and if it would be the best option. Tax professionals also tend to hike their fees when Tax Day is around the corner, so by shifting your returns to the slower summer months, you can negotiate better service fees.
There really aren’t a lot of disadvantages to filing a tax extension — except assuming that you can pay your taxes later without any consequences. As we mentioned before, however, filing an extension doesn’t mean you can delay paying your taxes. If you’re looking to ask for an extension because you can’t afford to pay your taxes at the moment, a better option would be to ask for an installment arrangement. But even then, you would have to pay interest on your unpaid taxes until your bill is paid in full.
Special circumstances may adjust the application rules and the duration of your tax filing extension. For example, U.S citizens living abroad or serving in the U.S. armed forces on foreign missions automatically get an extra 2 months to file and pay their taxes. However, you’ll still have to explain how you qualify for the extension and also have to pay interest on any of your unpaid taxes. If you know that you’re due to receive a tax refund, then you can simply file for an extension without paying an estimated tax bill. The sooner you file your return, however, the sooner you’ll receive your refund. Also, if you stay in an area that has been affected by a disaster and proclaimed a Presidential Disaster Area, you may qualify for tax relief.
The Bottom Line
Having a few more months to seek professional assistance, collect documents, review, and verify the accuracy of your tax return sounds like something any sensible taxpayer would want. Fortunately, requesting an extension is a fairly simple process that you can complete electronically or via mail. Keep in mind that filing your returns late doesn’t mean you can pay your taxes late. Still, late filing penalties are typically a lot more than late payment fees — and you may rather deal with one than both.
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.