The deadline to file your tax return is only three weeks away (April 18 for those who still don’t know). If you have not yet filed your federal return, I highly recommend taking a minute to request an automatic 6 month extension of time to file with the IRS. Why? There’s no penalty for filing early, but there sure is a penalty for filing late. The extension is a “better safe than sorry” move that can save you a lot of cash!
5% Per Month Penalty
If you do not request an extension, and miss the filing deadline, you could be subject to up to a 5% (4.5% for late filing, and 0.5% for late payment) per month penalty on any unpaid balances. Even if you only owe a small amount, an additional 5% per month can add up quickly.
IRS Form 4868
To request your extension, you will need to file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return with the IRS before the April 18th deadline. You can chose to either file a paper form, or e-file from your computer. It is your right as a taxpayer to request an extension, just remember that it MUST be mailed by April 18. If it’s late, the IRS will not accept it.
Not an Extension of Time to Pay
When you file IRS Form 4868 you will have an additional 6 months to file your federal tax return. However, keep in mind that this is not an extension of time to pay any taxes that are due. If you are likely to owe the IRS, you should consider making an estimated payment, or you will be looking at late penalty fees and interest accruing each month your payment is late.
If you e-file your automatic extension request, you will also have the option to make an estimated payment using a credit or debit card. You can pay by phone or over the Internet. If you think you’ll owe, make your best guess and pay up.
Once you request your extension, don't just forget about your taxes all together. As I mentioned, the extension is not an extension of time to pay. Therefore, if you aren't making an estimated payment, and you do end up owing the IRS, then you will want to get both your return and payment in as quickly as possible to avoid nasty fees.
Start Preparing for Next Tax Season Now
The best way to make sure you won’t need to file an extension next year is to stay on top of your taxes all year round. For more information, check out this article I posted a while ago on how to avoid needing an extension to file your return.