The April 15 income tax filing deadline seems to come up all too fast. For many Americans, this means a lot of last minute scrambling to get all their paperwork in order and make sure everything is ready to be filed on or before the deadline. However, what if you are not able to file your taxes before April 15? The IRS does offer the option to file an extension, which pushes the deadline out six months to October 15.
How to File an Extension: Filing an extension with the IRS is a fairly straightforward process; all you need to do is fill out a Form 4868 and file it either electronically or by mail on or before April 15. Americans living outside the U.S., such as those serving in the military, may be automatically eligible for an extension without the need to file a form 4868. Speak to a U.S. based tax professional to find out if you are qualified for this automatic extension.
For most Americans, it is best to file your taxes before the April 15 deadline. However, there are some circumstances when it may make sense to file an extension with the IRS. Here are some of the most common reasons to consider this option:
Missing/Incomplete Documents or Paperwork: The number one rule when dealing with the IRS is to make sure your tax return is accurate. If this means you do not have all the documentation necessary to file a complete return, then it makes good sense to ask for an extension.
Self-Employed Retirement Plan Donations: The deadline to contribute to a conventional or Roth IRA for the previous tax year is April 15. However, if you have a self-employed IRA (SEP IRA or SIMPLE plan), a tax filing extension can also buy you extra time to fund your retirement account. In this case, the extension can be very helpful in lowering your tax burden, especially if the additional payments to your retirement plan move you into a lower tax bracket.
Inability to Pay all Your Taxes Due: If you owe taxes for the prior year but do not have the funds available to pay them by April 15, an extension might be your best choice. It is important to understand, however, that simply extending the filing deadline does not eliminate any of the late payment penalties that you will incur for not paying by the April 15 deadline. Still, it is better to file an extension than do nothing at all because it buys you extra time to come up with the money and it allows you to avoid the late filing penalty.
Speak to a professional accountant for more information on how to file an extension and how it will impact your tax payment and budget.