As the tax deadline approaches, many taxpayers may find themselves not quite ready to file their personal income taxes. Whether due to missing documents, complex tax situations, or simply needing more time to gather information, filing for an extension can seem like a lifeline. But is it the right choice for everyone? Let’s explore the advantages and disadvantages of filing for a tax extension.
Let’s re-visit Con #2, as many people are unaware the IRS charges interest, considering your late payment a type of loan. Here’s a simplistic example to show how it works.
Suppose you owe $5,000 in taxes for the year but decide to file for an extension, granting you until October 15 to file your tax return. It’s important to remember that while the extension gives you more time to file, it does not extend the time you have to pay any taxes owed. The IRS charges both interest and a late payment penalty on taxes not paid by the original due date (April 15).
Calculating the interest:
Calculating the penalty for 6 months:
So, in this example, by paying your $5,000 tax bill on October 15 instead of April 15, you would incur an additional cost of $276 due to interest and late payment penalties. This example highlights the importance of paying your tax bill by the original due date, even if you’ve filed for an extension to submit your paperwork. To avoid unnecessary interest and penalties, it’s crucial to estimate and pay any owed taxes by the original due date.
To file for an extension, you need to submit Form 4868 to the IRS by the original filing deadline (April 15). You can do this electronically through tax software, with the help of an Orange County tax professional, or by mailing a paper form.
If you’re working with Evolution Tax & Legal, an Orange County-based CPA and legal firm, we will file the tax extensions on your behalf.
No, generally speaking, filing for an extension does not increase your chances of being audited. The decision to audit a tax return is based on various factors, including the complexity of the return and any discrepancies noted by the IRS. Filing for an extension is purely administrative and does not trigger an audit.
Yes, U.S. citizens and residents living outside the country on the tax deadline are automatically granted a 2-month extension to file their return and pay any amount due without requesting an extension. However, interest still accrues on any unpaid tax from the original April 15 deadline. If more time is needed, you can still file Form 4868 for an additional 4 months, extending your deadline to October 15.
If you can’t pay the full amount owed by the extended deadline, it’s important to pay as much as you can to minimize interest and penalties. You should also consider contacting the IRS to discuss payment options, such as installment agreements, which allow you to pay your tax debt over time.
If you file Form 4868 electronically, you’ll typically receive an electronic acknowledgment. If you mail the form, you won’t receive a notification from the IRS unless your request is denied. It’s important to ensure that your form is filled out correctly and submitted on time to avoid any issues.
Yes, filing for an extension also extends the deadline to make contributions to your Individual Retirement Account (IRA) for the previous tax year. You have until the extended filing deadline (October 15) to make these contributions. However, late contributions may be flagged by the IRS, potentially increasing your chances of being audited. Consult a tax attorney for more information.
Deciding whether to file for a tax extension depends on your specific situation. If you find yourself unprepared as the deadline approaches, an extension can provide the necessary relief and time to accurately complete your taxes. However, it’s important to weigh this decision carefully, considering the potential for delayed refunds and the accumulation of interest and penalties on owed taxes. Regardless of your choice, proactive planning and consultation with a tax professional can help navigate the complexities of tax season with confidence.
This overview should help you assess whether filing for a tax extension is the right move for you this tax season. Always consider your personal or financial situation and, when in doubt, consult with a tax advisor to make the most informed decision.
February 1, 2024
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