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Since 1955, "Tax Day" in the United States has been April 15, or the next business day if it falls on a weekend or holiday. Despite the fact that taxes are essentially due on the same day every year, many people still find themselves scrambling on the day before to get their records together.
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Fortunately, the Internal Revenue Service allows taxpayers to file for an extension to October 15 if they need more time to prepare their tax returns. You can obtain an extension for any reason; the IRS grants them automatically as long as you complete the proper form on time. Check your state tax laws; some states accept IRS extensions while others require you to file a separate state extension form.
Benefits of filing an extension
Filing a tax extension is free, easy, and automatic: Just submit Form 4868 electronically or on paper by the filing deadline. TurboTax Easy Extension makes it easy.
Not only will you extend the filing deadline until October 15, but you'll also relieve the stress that often accompanies trying to pull everything together by tax time. More time and less stress mean you'll be able to thoroughly review your return and ensure you're taking advantage of all the tax benefits available to you.
You'll also avoid failure-to-file penalties, which can add up to 25% of the tax due. If you file an extension but miss the extended deadline, you will be subject to this penalty. Keep in mind that filing an extension when you owe taxes only gives you more time to file, not more time to pay—your payment is still due at the tax filing deadline.
An extension will allow you to take advantage of retroactive changes to the tax law that might be made after the filing deadline, without the added time and expense of filing an amendment. Additionally, some tax professionals theorize that filing an extension will decrease your odds of being audited since IRS auditors must meet quotas and try to do so early in the year. While the IRS does not disclose its process for selecting returns for audit, the earlier a return is filed, the longer it is in the system and thus subject to a review.
Missing or inaccurate information
You can't file an accurate return if you don't have all the information you need, or if what you have is incorrect. It's not unusual for some information returns, such as a Schedule K-1 or Form 1099, to arrive too late to allow you to complete your tax return by the filing deadline. The IRS does impose deadlines for filing information returns, but extensions are frequently granted. These extensions can usually be for 30 days or six months, depending on the return.
Financial institutions and investment companies typically send 1099s to their customers to report interest, dividends, capital gains, and sale proceeds. These returns often need correction, especially if they are based on information from multiple investments. "Sometimes if a company knows they are going to be correcting 1099s," notes Martin Cole, a tax educator, and former accountant, "they will send a notice to let clients know a change is coming."
You'll be out of town during tax season
With electronic filing of income tax returns and the ability to obtain electronic copies of many tax forms, taxpayers who are out of town during tax season can often get their returns completed and filed by the filing deadline. If you still need some paper information, however, or aren't comfortable with electronic filing, a tax-time vacation may compromise your ability to meet the filing deadline.
"Our practice had a lot of 'snowbird' retired clients who traveled to the southern states for six months of the year," says Cole. Since the clients were expecting refunds, they would file an extension and complete their tax returns when they headed back up north in the spring.
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Schedules and timing interfere
"Sometimes," says Cole, "you just run out of time." People get busy and keep telling themselves they'll get to their taxes later, and soon enough it's Tax Day Eve and there's just no way you'll get your return done on time. Tax preparers get busy, too, and many will automatically file for an extension for clients who bring their information in within a week or two of the deadline.
Dealing with a major life event could also cause you to miss the tax deadline. The loss of a loved one, moving, marriage or divorce can take up your time and your energy. Filing an extension will let you deal with your situation when you need to, without having to worry about preparing and filing your tax return.
Why not to file an extension
Many people file for an extension because they owe taxes and are unable to pay them.
"Inability to pay is the worst reason to file an extension," warns Cole. An extension gives you extra time to file, but not extra time to pay. After you file an extension, if you owe taxes when you file your return, you might also have to pay penalties and interest on the tax due.
If you file an extension for other reasons, you must determine as best you can whether you'll owe money or get a refund; if you expect to owe money, you should pay that amount with your extension. Use a tax estimator like TaxCaster to estimate how much you may or may not owe.
Instead of requesting an extension when you can't pay your tax due, the IRS offers some payment alternatives. You can request a short extension to pay, of 60 to 120 days; you will still pay penalties and interest but at a lower rate. The IRS also offers installment agreements for taxpayers who can't pay their taxes when they are due. An installment agreement lets you pay a set amount per month until the tax is paid. Finally, the IRS suggests you consider paying your tax due with a credit card or loan. In many cases, the interest on these accounts will be lower than the combined penalties and fees you'll pay the IRS.
Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax, you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.
