Accountants tell Moneyish how and why someone should file an extension on their tax returns
Make your April a little less taxing.
Tax day is dreaded by millions of Americans, and some people have such a hard time coming to grips with filing for taxes that they file extensions to prolong the inevitable. Instead of panicking about this year’s April 17th deadline, filing an extension with the IRS — which is what 13.6 million people did in 2016 — can buy you more time to prepare your returns.
According to Visor, a new online filing and advisory service, by filing for an extension, you’re requesting an additional six months to prepare and file your tax return, assuming the IRS’s automated system approves your extension request — which it almost always does instantaneously. Therefore, your new deadline becomes October 15th, 2018. The IRS reports that during the 2016 fiscal year, more than 244 million tax returns were processed, with more than $3.3 trillion collected and $426 billion in refunds were issued. The IRS Data Book reveals that in 2017, nearly 16 million taxpayers filed extensions to request additional time to file their returns. The IRS also reports that only 0.5% of all returns filed in the 2016 calendar year were audited — which translates to 1.1 million returns.
“Most people file an extension because they have a complicated tax situation,” Kate Haney, VP of tax at ASGN Incorporated told Moneyish. As a corporate tax specialist, Haney says the reason her company files extensions is to give themselves more time to gather information. Anyone can apply for an extension though, so if you just aren’t ready to file, you blew the deadline or don’t have your stuff together, you qualify for the extra six months.
William Perez, senior tax accountant at Visor told Moneyish, “The most efficient way to file an extension is to fill out and mail in Form 4868 which can be downloaded directly from the official IRS website. It only takes a minute or two to fill out and be sure to mail it using certified mail with return receipt requested — the green postcard that comes back is your proof that the IRS received your extension.” That said, Perez recommends people ask their tax accountant to file their extensions to request additional time and that way, the IRS will send a confirmation code to the accountant. But if you’re filing yourself, the most important thing to remember is that the deadline to apply for an extension is the same as the April 17th, 2018 filing deadline.
Here’s what to know about filing an extension:
It doesn’t draw any attention to you.
In fact, an extension gives you the time you need to make sure your tax return is complete and accurate, which should result in lower chances of an audit.
It doesn’t give you extra time to pay.
If you owe taxes, the deadline to pay the remaining balance of your 2017 tax is April 17, 2018. If you suspect that you’re likely going to owe the government money, make sure to calculate an estimated payment that must be submitted regardless of whether or not you file an extension.
Late payment penalties can apply.
If you have an amount owing for 2017 tax and you pay this amount after April 17th but before October 15th, the IRS will charge you a late payment penalty of 0.5% per month plus interest of 4% per year. But, they won’t charge you with the late filing penalty of 5% per month.
You won’t get penalized if you have a return coming your way.
As long as you file before the October deadline, your tax return will be considered as filed on-time. And accordingly, the IRS will not charge you with a late filing penalty. Returns are still processed in the typical 21-day timeline that those who file in April are subject to.
IRA accounts also get extra time.
Unfortunately, Visor notes that an extension does not give you extra time to contribute savings for tax year 2017. Those funding contributions must be made by the April 17th deadline. But an extension does provide extra time, however, to re-characterize previously made IRA contributions for tax year 2017, and for self-employed persons to fund their SEP-IRA. An extension gives you until October to take action on Individual Retirement Accounts.
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