I did file our taxes for this year already. I hope you have done so as well. Filing tax return is probably the most important financial responsibility we have. If you haven’t done so, there are only two more days (when this blog post goes live). If you can’t complete the filing in next two days. You should ask for an extension.
In this post we will talk about some important aspects of tax extension. By regulation any one and every one can file for tax filing extension and there is no eligibility criteria. the applications that get rejected every year are basically due to data entry errors, not by qualification. If you feel you need some more time to gather the paper work, you should file for an extension.
The only caveat is you’ll need to pay interest on the money you owe IRS beyond April 15th tax filing deadline. As per this IRS FAQ sheet, you should file your taxes even if you can’t pay IRS the entire amount up front. If you have a complete return, you should file your return now.
Last year luckily I got tax forms from one of my brokers very late, had it been few more days of delay (in publishing tax forms in their website) I would have filed for an extension. In case all your documents are not available, there’s no option but to file and extension, anyway.
Here are the things you should know to file a tax extension request
How to File – This can be done by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to the IRS by April 15, 2014, or make an extension-related electronic credit card payment. You can also file for extension via eFile system of IRS. Easy still, to get it done via your regular tax filing soft ware.
I use TaxAct and I do get prompt from them to opt for extension while I file our taxes. All regular tax software like, TurboTax, etc has option to file an extension.
Estimate your 2013 tax liability – When you file for extension, you’ll be asked for estimated tax liability. Do enter as much of your tax return data as you can, using the figures you already have. Don’t be afraid to guess unknown numbers as estimates. You can always update those when you get ready to file.
For example, if you know you made a profit of $5,000 by buying and selling stocks, but you’re still waiting for the Form 1099-B from your broker, just enter some dummy transaction with estimated date (you may get it from old emails or transaction history section on your broker’s website) and come up with a figure of $5,000 as profit.
Before filing actual return, you’ll get ample time to modify and put exact numbers. Even if your estimates indicate that IRS owe you refund, still file for an extension as late filing penalties are much more than the late payment penalty.
If possible, pay partial taxes – If estimated tax liability is too high to pay in full, consider paying partial amount while filing for an extension. Extensions are associated with monthly interest after April 15th deadline. Any payment now will reduce your interest burden later.
Now lastly, after you file your extension, don’t forget the next deadline, i.e. October 15th.