Tax Day is next Monday. If you haven’t filed your taxes yet, should you be considering filing for an extension?
It’s easy to file for an automatic six-month extension on your federal tax return. Just fill out Form 4868 and file it by April 15. (You can also file it electronically). You don’t have to give a reason for seeking the extra time. You’ll then have until Oct. 15 to complete your tax return.
Last year, the Internal Revenue Service received roughly 10.7 million extension forms. (There are roughly 140 million tax filers each year.) Filing for an extension lets you avoid a late-filing penalty, usually 5 percent a month based on your unpaid balance.
But even if you file for an extension, that doesn’t mean you have an extension on paying any taxes you may owe. You must, in effect, make your best estimate of what you owe on the extension form, and pay it. If you don’t, you risk paying penalties and interest on what you owe.
Generally, you should file your taxes on time if you can, but there are valid reasons for seeking an extension, said Ed Mendlowitz, an accountant and partner with Withum Smith & Brown in South Brunswick, N.J., who blogged about this topic recently.
For instance, perhaps you didn’t receive certain important forms, like a Schedule K-1, showing your share of profits or losses from a partnership. Or you have a complicated tax situation and want your tax preparer to have more time to complete your return in an unhurried manner. Or perhaps you are self-employed and want to establish and finance a Simplified Employee Pension Individual Retirement Arrangement – a retirement plan for business owners and their employees – but you don’t have the cash on hand. If you file for an extension, you can wait to set up the plan and put the money in by the extended filing deadline.
Mr. Mendlowitz said it was not true that filing for an extension would increase your chances of being audited. Indeed, he said, if you wait until October to file, you may slightly reduce your chances of being audited, because the I.R.S. is generally selecting returns for audit in late summer and early fall.
It’s important to note, he said, that requirements for an extension on your state tax return may be different. Some states, for instance, won’t grant extensions to file if you owe money and don’t pay at least a proportion of it by April 15, so you should check the rules for the state where you are filing.