How to File A Tax Extension When You Need More Time?
Taxes are inevitable, and nobody can pretend they enjoy the process of preparing and filing taxes every year. If you have filed your own taxes before or if you have at least helped prepare the paperwork on yours for several years, you at least understand the process and may be able to get through it relatively quickly.
If you are new to filing taxes, it is important that you learn the basics about how to save money on taxes, what kind of information you need to gather, and, if you need to, how to file a tax extension.
What are Taxes?
Our philosophy and Budgetry, and across the Goalry family, is simple. We believe that with the right information, access, connections, and tools, most of us are perfectly capable of taking more effective control of our personal or small business finances. Whether it’s building a budget, taking out a personal loan, or investing in the future, we believe in the power of unified finance to make personal and small business finances more understandable and more efficient.Fraud is a different matter, and people who deliberately try to trick the government to avoid taxes can get into serious trouble because that is a crime. How much you owe depends on various factors, such as how much you earn, how much you buy, whether you own property, and the size of your family. In the United States, the tax system tries to be fair toward those who earn less.
Where Your Money Goes?
The government uses the funds from taxes to fund its own operations and other programs. Even the tax agencies are funded by taxes. The government must pay for the salaries of government workers, training, health insurance, the buildings where the employees work, equipment, utilities, and many other expenses.
Besides that, taxes go toward national defense and the support of the armed forces, Medicaid, Medicare, road maintenance, schools, and many other important needs. It can be difficult to grasp how much the government does, but all those services would be missed if the government wasn't taking care of them.
How to File A Tax Extension
Are you sure that you need to file a tax extension? If you are expecting a return, it may be better to try to overcome whatever obstacle you are facing so that you can go ahead and file. If you are not prepared when your taxes are due, you may have to file a tax extension anyway. Keep in mind that even if you get a tax extension, that doesn't change when you owe your taxes. If you are expecting to pay instead of getting a refund, you may incur interest and/or late charges if you file late.
Do you want to send your request through the mail or online? You can actually file for a tax extension either way. The IRS has a free file option for individual tax filers and a form for anything you need to do. The form you need to file for a tax extension is Form 4868, and it is relatively easy to fill out, with less than 10 questions. You only need to provide basic identifying information for yourself and your spouse and then fill in your estimated tax liability and how much you have paid so far. To keep from paying those extra fees and fines, you can even send in a payment with your request for an extension.
Extension Forms by Filing Status
Which form you need to file depends on your filing status. There are different forms depending on your individual status.
Individuals filing for an extension need to fill out Form 4868 in order to get an automatic extension. The form explains how to pay if you think you will owe taxes, whether you e-file the form or send it by mail. This form applies to U.S. citizens and resident and nonresident aliens, but filers must have a social security number or tax identification number
Tax extension deadline depends on the year, it’s usually in October, but you may be able to get an exception if you live out of the country. If you are choosing to mail your form, you need to look up your location on the bottom of the form so you know which office should receive your form. There are also instructions at the bottom of the form letting you know how to claim the credit if you did pay your estimated taxes while getting an extension
Even businesses are eligible for an automatic extension of filing, but like individuals, they are required to pay any fees or interest that accrue starting at the regular due date.
There is a special form for U.S. citizens living abroad to file for an extension
Other extensions exist for tax-exempt organizations, transfer tax, employee plan returns, and other important filings
Getting Free Filing Help
Many individuals are eligible to receive free tax preparation services. The Volunteer Income Tax Assistance Program (VITA) offers free help to taxpayers who earn less than $56,000 a year, individuals with disabilities, and individuals who may have limited abilities with English. If you qualify, VITA will also usually provide free electronic filing services. The service is made of volunteers who receive special training so they can assist with filing taxes, and they are IRS-certified.
Another program, called Tax Counseling for the Elderly (TCE), will help any taxpayer, especially any taxpayer aged 60 or over. TCE is also made up of volunteers, and these volunteers receive extra training so they can answer questions about pensions and retirement-related issues. In fact, the volunteers for TCE have often retired themselves, and they are often associated with non-profit organizations that benefit from IRS grants.
You can use the handy locator tool to find VITA and TCE locations, and you can prepare for your appointment by going over the checklist on the What to Bring page. If you don't bring the necessary documents, you will probably have to reschedule.
Pros and Cons of Filing a Tax Extension
Filing for an extension is quick and easy, but don't make the decision too quickly. First, consider the pros and cons of filing a tax extension.
Pros to Filing a Tax Extension
You may really need the time because you are missing tax documents.
You will only have to deal with the interest, not the penalty if you get an extension on filing. If you just pay late, you will incur the late penalty and compounded interest.
There is a 3-year deadline for filing your taxes to get a refund, and getting an extension adds six more months to that time.
An extension can give independent contractors and other self-employed individuals more time to set up a self-employed retirement plan for the previous year.
You can have more time to choose your deductions and credits.
Your tax return may be more accurate if your tax preparer is helping you after the regular tax season is over when there are fewer demands on his or her time.
Tax preparation fees may be raised during the regular tax season, so you may be able to save money by waiting.
You reduce your risk of an audit. The IRS has to do a certain number of audits every year and they may have done most of them by the time you file.
Cons to Filing a Tax Extension
You don't have extra time to fund your IRA, and you won't be able to recharacterize an IRA contribution after the deadline.
You can't switch from joint to married filing separately after the deadline.
Of course, the biggest con is the extra money added to your tax bill.
Penalties for Filing a Tax Extension
Late payment penalties may not seem like much but they really add up. The penalty is calculated at 0.5% of the unpaid tax balance per month. The maximum you can be charged in late payment penalties is 25% of the unpaid tax. That means that you will end up paying a lot more in interest, though, if you owe a lot more.
Say your tax balance is $1,000:
Penalty per month = $1,000 x 0.5% = $5
Total possible late payment penalty = $1,000 x 25% = $250
You can get a two-month extension without paying the late payment penalty if you are going to be out of the country when taxes are due, but you will still owe interest.
What makes unpaid tax bills unmanageable is that the unpaid interest is compounded daily from the original due date until the entire bills are paid. Every day you don't pay adds to your tax bill. Compounding interest results in a daily recalculation of the principal amount plus the amount of accrued interest.
What Should You Do After You File a Tax Extension?
Don't just sit back and wait for the new due date to approach after you file an extension. Here are the steps you should take:
First, make sure that your paperwork or e-filing arrived on time so that you know the true due date
Pay any taxes you owe. You won't know the exact amount but you can estimate it based on the information you do have. Remember, it is better to at least pay off what you can because the interest is compounded daily when your payment is late
Keeping Your Tax Records
There are several reasons to keep your tax returns and other supporting documents.
First, you will need your last year's return for information on your latest return
Second, you want to be able to prove that you did pay the correct amount of tax depending on your income and deductions
Third, the IRS can audit you years after the fact and it is better to have those records handy in case they ask for them
Most of the time, you won't need to keep your records for more than 3 years. If you have any questions, you may want to save them for 7 years before destroying them. If you filed a claim from worthless securities or bad debt reduction, you might need to be able to produce the records 7 years later. Whatever you do, keep your records somewhere safe so they don't fall into the wrong hands and so they aren't destroyed. If you have secure online storage, that may be the best place to keep your tax records.
Special Rules for Special People
The process may be even simpler for certain groups of people. If you fall into one of the special categories, you will not need to fill out the same paperwork. You can simply pay all or part of the estimated income tax that is due from you and pay it online, with either a debit/credit card, by using Direct Pay, or by sending the money through the Electronic Federal Tax Payment System (EFTPS). Enrolling in EFTPS is quick and easy, and you only need an email, your bank account number, and a PIN you create to make payments and get confirmation.
How to Avoid Filing for a Tax Extension
Filing early is the best way to avoid the need to file a tax extension entirely. Plus, if you file early, you don't have to deal with the stress of having it hanging over your head for months. If you are getting a refund, you will get your refund sooner if you file sooner. Anyone claiming the Earned Income Credit must wait until the beginning of March even with an early filing and nothing wrong with the tax refund. If you owe taxes, it is good to know as soon as possible. You don't have to pay as soon as you file; your taxes won't be due until the tax deadline. So you can file and save up to pay your taxes by the deadline.
1.Stay Organized
Most people who wait to file are simply disorganized, so you can avoid filing a tax extension by keeping your paperwork organized and easy to find. If you file a tax extension and then find out that you owe taxes, you will owe extra fees on top of your taxes.
2.Prevent Fraud
Also, filing early will help prevent tax fraud. Sometimes people file their taxes only to find out that someone has already used their information to get a refund, and it can take a long time to get that straightened out.
3.Find a Tax Professional
When you file early, you don't deal with last-minute panic, meaning you are more likely to do your taxes accurately. That means you are less likely to deal with filing an amended return, and it also means that you will find it easier to get assistance from a tax professional. Really good tax professionals start to get booked up when it starts getting close to the tax deadline. Enlisting the help of a professional can help you get those extra credits and deductions you might miss on your own.
How to Get Ready to File Taxes
As with any other financial endeavor, the first step in preparing for tax filing is to gather all your documents.
Have All Your Documents Ready
Your W-2 should come from your employer in January, and you can use a Form 1099 to report other sources of income. The 1099-INT is the form for reporting interest, and 1098 is where you can report student loan or mortgage interest. You should have your end-of-year mortgage statement, rent payments, retirement and education information, and any other documents relative to your personal situation, such as bank statements for stocks and bonds.
Get the Forms You Need
A tax professional will file online but there are a couple of ways to file taxes if you are choosing to do it yourself. E-file is faster, easier, and less likely to contain errors. You can purchase software to file your own taxes or, if you make less than a certain amount, you can file online for free.
Some people use real paper forms, which are available online and at many public libraries. If you choose this option, keep in mind that you will be waiting at least 6 to 8 weeks to get your forms processed, and that is if there is no problem with the return. Another thing to remember about filing with paper forms is that you have to enclose all of the necessary schedules and forms if you don't want your return to be rejected. There are volunteers who are trained to help people with simple tax filing and they will file your taxes for free also.
Different Kinds of Taxes
Income taxes are the taxes the government takes from the money you earn, and when you file taxes at the beginning of the year, you are filing on your state and federal income taxes. Most people have income taxes taken out automatically by their employers, but anyone who doesn't get that service still needs to pay those taxes. Other kinds of earnings are interest, dividends, capital gains, and business income. However, you may get certain breaks on your taxes for reasons unrelated to your income.
Another kind of tax is sales tax, which is the tax placed on any goods and services you purchase. Every state decides what level of income tax is appropriate for that state, and some states don't have a sales tax at all: Alaska, Delaware, Oregon, New Hampshire, and Montana. While the state sets the state sales tax, local jurisdictions can also set a local sales tax. That is on top of the tax already assessed by the state. While Alaska does not have a sales tax, the state does allow local governments to assess a sales tax. If the sales tax is not included in the purchase, you will still owe the money when you file your taxes. If you owe a lot in sales taxes, you may be able to file a tax extension.
The next kind of common tax is the excise tax, which is a special tax on certain items that are considered luxury items, like cigarettes, alcohol, and gambling. Excise taxes are often included in the price of the product, so people don't realize they are paying them.
Anyone who owns a home, a piece of land, or a commercial piece of real estate must pay property taxes, and those also vary state by state. Property taxes more directly fund local needs like schools, roads, sewage treatment, and drinking water in the area. Finally, every business must pay business taxes on any income the business earns.
Different Levels of Taxes
Not only are there different kinds of taxes, but taxes can also be collected from different levels of government. The federal government is the biggest tax collector in the country and has the biggest budget, but states have their own agencies that decide on tax rates, collect taxes, and enforce compliance. The way the government is set up, different levels of government have different responsibilities, so the responsible entity has to collect enough money from the citizens to perform all the necessary functions. Besides those levels of taxes, there may also be local taxes, which could be levied by a county or municipality in order to provide services like trash removal or street cleaning.
Know Your Taxes. Take Care of Your Taxes. The Taxry Store Will Help.
Does Everyone Need to File Taxes?
Most people need to file taxes, although there are some exceptions. Anyone who earns at least $10,000 during the year or who makes at least $400 from self-employment is required to file taxes, meaning that there are some people who legitimately do not need to file taxes. Many of these people still file because they might receive certain advantages, and some may file anyway just because it is good to maintain financial records with the government regarding your income.
Who Doesn't File?
Some people do not file taxes because they are getting paid "under the table," meaning that their employers are not reporting the income. Others fail to comply with tax laws because they disagree with the tax system. Anyone who is deliberately failing to pay taxes could get into serious trouble. If you accepted a bribe, you need to include it in your earned income, and illegal activities should be reported on Schedule 1 (Form 1040 or 1040-SR), line 8, or on Schedule C (Form 1040 or 1040-SR) if they from your self-employment activity. The IRS will not turn you in for committing illegal activity but they will prosecute you for tax fraud if you fail to report the income.
Consequences of Tax Fraud vs. Accidental Noncompliance
If it turns out that you were wrong in figuring out your taxes, the tax agency involved will send you a letter explaining the discrepancy and giving you a chance to dispute it. If you agree with how much they say you should pay, you can end the event by simply paying the difference or, in the event that their correction favors you, by accepting the tax refund offered.
If you end up owing more than you can afford to pay at once, you should contact the tax agency immediately, whether state or federal, and make arrangements to pay. As long as you are honest and paying within your means, the government will let you take care of tax debt by paying it off more slowly. That might mean owing extra fees and interest, but at least you know they will work with you and not put you in jail just because you can't pay off the entire tax bill at once.
However, deliberate noncompliance is completely different. If the government determines that you are committing tax fraud, you could be prosecuted and actually go to prison. If you are convicted of tax evasion, you could go to prison for up to 5 years. Failing to file a return can result in jail time, as can helping someone else try to evade a tax bill. Depending on the particular crime and the jurisdiction, the government must file charges within 3 to 6 years to meet the Statute of Limitations.
To Conclude,
Are your taxes due soon? It still might not be too late to avoid filing a tax extension. Tax preparation help is available from the government, volunteers, and tax professionals. One advantage of using a tax professional is that they sign the return with you. Your Certified Public Account can represent you if you are ever audited, making it much less scary. They can also look for additional ways of saving money on taxes and give you advice on different things to do during the next year so you can save even more.
Whatever method you choose, be as honest as you can and check through your work before you send it. Do your state and federal taxes together so at least you only have to deal with taxes once a year.