Tax season can be a stressful time of year, especially if you’re not able to file your taxes by the April deadline. In such cases, filing for an extension can provide some relief and help you avoid penalties. In this guide, we’ll cover everything you need to know about filing for an extension on your taxes, updated to 2023.
Why You Might Need to File for an Extension
Life can get busy, and sometimes it’s challenging to meet all our deadlines. The same goes for tax filings. There are several reasons why someone might need more time to complete their tax returns, including:
- Complicated financial situations that require additional paperwork or information: For instance, if you’ve recently sold a property or have multiple sources of income, you might need more time to gather all the necessary documents and information.
- Personal events such as illness or death in the family that could affect one’s ability to focus on tax return preparation: During such difficult times, it’s understandable that tax preparation might not be your top priority.
- Business owners who might have accounting complexities they must address before finalizing their returns: If you own a business, you might have additional forms to fill out and more complex tax situations to handle.
Filing for a tax extension is not difficult, and it provides some much-needed flexibility during what can otherwise be a highly-stressful period.
How To Apply For An Extension
The process of applying for a tax extension is simple and straightforward – both individuals and businesses are eligible. By following these steps, filing an extension becomes easy:
- Calculate your estimated taxes due: Before starting any application process with the IRS make sure that you know how much money you will owe when filing your complete return. You can use online tax calculators or consult with a tax professional to get an accurate estimate.
- Fill out Form 4868: This form allows individuals up to six additional months beyond the original due date (April 15) to file without penalty. It’s a simple form that requires basic personal information and your estimated tax liability.
- Submit Form Electronically: If possible submit electronically even though paper submission is also valid. Why? Because electronic submissions ensure faster processing times, making it easier on everyone involved. Plus, you’ll get a confirmation receipt immediately, giving you peace of mind.
What Happens After Filing For An Extension?
Once filed, the IRS grants extensions automatically unless there’s evidence of fraud or failure-to-pay taxes. With that said it’s important to understand a few details:
- Filing an extension doesn’t mean you’ll have additional time to pay any taxes owed: You will still need to estimate and submit payment for the due amount upon submitting the form 4868. For example, if you owe $5,000 in taxes, you should pay this amount when you file for an extension to avoid penalties and interest.
- Interest and penalties may continue to accrue: Not only do you have to be aware of what your tax liability is, but if there are unpaid taxes—interest and penalties can accumulate until paid in full. As of 2023, the IRS charges a failure-to-pay penalty of 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid.
- Extensions don’t extend state filing deadlines: If you file an extension on your federal return, make sure that your state deadline hasn’t also passed by April 15th or their specific deadline. Each state has its own rules regarding tax extensions, so it’s important to check with your state’s tax agency.
Tips For Making The Process Easier
Filing for an extension might sound daunting, but it doesn’t need to be. Here are some tips that can help make the process easier:
- Avoid Last Minute Filings: This isn’t something you want hanging over your head at midnight on April 15th. Give yourself time and avoid rushing; failure-to-file could result in significant fines from both local governments and the IRS.
- Use online service providers who specialize in filing tax extensions: There are many businesses specializing in attaining extensions for those who require additional time before preparing their returns.
- Consult with a Tax Professional: Talking through complications with someone experienced can alleviate stress levels and potentially save money down-the-line.
Filing taxes is not a simple task, especially when undergoing more complex situations or facing personal obstacles while trying to meet deadlines. But thankfully there’s economic relief available. To successfully complete this process, it’s essential first to determine how much money is applicable. Additionally, opting for electronic submissions speeds up processing times. Lastly, business owners should consider consulting professionals when advice remains necessary.
Can I file for an extension on taxes electronically?
Yes, you can file for a tax extension electronically using IRS Form 4868 through the IRS e-file system. You will need to provide basic personal and financial information, including your estimated tax liability for the year.
Will filing an extension increase my chances of getting audited by the IRS?
Filing for a tax extension alone does not increase your chances of being audited by the IRS. However, if there are inaccuracies or discrepancies in your filings or other red flags that trigger suspicion during their review process, it could lead to further scrutiny.
Does filing an extension give me more time to pay my taxes?
No, filing an extension only gives you more time to submit your tax return paperwork; it does not extend the deadline for paying any taxes owed. If you do not pay any estimated taxes due by the regular deadline (usually April 15th), you may face penalties and interest charges from the IRS until paid in full.