Filing Extensions
If you can’t meet the April 15 deadline to file your tax return, you can get an automatic six month extension to file your tax return.
Seven things to know about filing an extension:
1. Extra time to file. An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April 15 deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by the April 15 date.
2. File on time even if you can’t pay. If your return is completed but you are unable to pay the full amount of the tax due, do not request an extension. File your return on time and pay as much as you can—ideally, at least 90 percent of what you owe. The IRS will send you a bill or notice for the balance due.
3. Form to file. Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return to the IRS by April 15, 2011.
4. E-file extension. You can e-file an extension request using tax preparation software with your own computer or by going to a tax preparer who has the software. The IRS will acknowledge receipt of the extension request if you file by computer—if you chose this route, make sure you get that acknowledgement receipt.
5. Traditional Free File and Free File Fillable Forms. You can use both Free File options to file an extension. Access the Free File page at IRS.gov.
6. Electronic funds withdrawal. If you ask for an extension via computer, you can also choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers.
7. How to get forms. Form 4868 is available for download at IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).You can also obtain the form at your local IRS office.
Why would a taxpayer file an extension?
Without a valid extension, a late-filed return is subject to a 5% per month penalty on any unpaid balance. The combined penalties for late-filing and late-payment can be as much as 47.5% (see below) of the unpaid tax. Even if you expect a refund, filing an extension protects your right to make some elections that otherwise have to be made by the due date of the return. One example is the right to recharacterize an IRA contribution [if you are in this situation, let a tax preparer help you with this]. File Form 4868 to automatically extend the filing deadline 6 months to Oct. 15.
Filed on time but didn’t pay all of the balance due.
There is a late-payment penalty of 0.5% of the tax owed for each month, or part of a month that the tax remains unpaid after the due date, up to 25% of the tax due. The 0.5% rate increases to 1% if the tax remains unpaid after several notices have been sent, and the IRS issues a notice of intent to levy. The penalty will not be imposed if you can show reasonable cause for the failure to pay.
Haven’t filed or paid the balance due.
If you don’t file on time, and you owe tax, you may owe a late-filing penalty in addition to the late-payment penalty unless you can show reasonable cause. The combined penalty is 5% (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return is late. The late-filing penalty is generally imposed for a maximum of 5 months. However, after 5 months, if you still have not paid, the 0.5% late-payment penalty continues to run, up to 25%, until the tax is paid. So, the combined maximum penalty may be as high as 47.5% [(4.5% x 5 months) + 25%].
Note: If your return is more than 60 days late, the minimum late-filing penalty is the smaller of $135 or 100% of the tax required to be shown on the return.
Paying on an Installment Arrangement.
If you are on an Installment Arrangement, the IRS will charge an administrative fee plus interest on the unpaid tax. If you filed a timely return and are paying your tax due according to an installment agreement, the late-payment penalty is 0.25% (instead of 0.5%) for each month, or part of a month, that the tax remains unpaid.
The interest rate is adjusted every 3 months.
Special rules for extensions may apply if you are:
1. Living outside of the United States
2. Out of the country when the 6-month extension expires, or
3. Serving in a combat zone or a qualified hazardous duty area.
Additional Extension of Time for Taxpayers Out of the Country
Taxpayers who are out of the country (as defined in the Form 4868 instructions) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers).
To request this extension, they must send the Internal Revenue Service a letter explaining the reasons why they need the additional 2 months. They will not receive any notification from the Internal Revenue Service unless their request is denied for being untimely. Generally, if you do not receive anything back from the IRS, you can assume that your request has been approved. Knowing the IRS, I would still call in to make sure the request has been approved.
The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350 (for U.S. citizens and resident aliens abroad who expect to qualify for special tax treatment).
Armed forces
If a taxpayer is a member of the Armed Forces, they may qualify to defer (or delay) payment of income tax that becomes due before or during their military service. They must notify the Internal Revenue Service that their ability to pay the income tax has been materially affected by their military service.
Their income tax will be deferred for a period not to exceed 180 days after termination or release from military service. If they pay the income tax in full by the end of the deferral period, they will not be charged interest or penalty for that period.
Note: This exception does not apply to the employee’s share of social security and Medicare taxes they may owe.
Source: RoniDeutch.com
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