How To File a Tax Extension In 2018
There’s plenty of confusion when the time comes to file an extension on your taxes, but there doesn’t need to be. In fact, the hardest part of filing an extension isn’t having a reason, it is usually understanding that, despite the fact you’re return isn’t due, your taxes are.
That’s right – filing a tax extension still means that your taxes – at least an accurate estimate of them – will need to be paid by the “regular” due date for the taxes in question – personal, corporate, or business. If you don’t take that critical step, the IRS can invalidate your extension and really cause you some heartache.
Yes, You Can Probably E-File Your Extension Form
The primary form used in filing an extension for a business entity is Form 7004 but individual returns will use Form 4868. Actually, there are a number of forms that may be applicable for specific situations – you can see the majority of them here. The good news is that even if you are still doing your own taxes, all of the major tax software applications have a system to help you file an extension. Depending on the suite you’re using, you can either use the “search” option or look in the tabs on your dashboard and see the “extension” option based on the type of return you’re dealing with. From there, simply follow the prompts and, in many cases, the IRS will not levy any charges for filing an extension – but remember, you still have the responsibility of the taxes owed, even though the return isn’t finished.
Of course, if you have a professional preparing your returns, they should probably handle these details for you and merely keep you apprised.
Why Do You Need To File An Extension?
Here’s the best news when it comes to tax extensions – you don’t need a reason! Many times, though, Schedule K-1s, Form 1099s, and others take a little extra time to arrive and can cut your own business’ preparation time short, so an extension is the most practical way to handle filing deadlines. In other cases, an individual taxpayer may have personal challenges or simply not have made the time.
At the same time, professionals like bookkeepers and accountants also may file extensions on behalf of companies due to the amount of work still to be done in preparing tax and financial information – especially those taxpayers who don’t have their financials in order as tax deadlines loom.
The main reason for filing an extension, though, is simply this: Taxes demand the utmost accuracy and, at times, that accuracy takes more time. A failure to adequately document your business or personal return can cost you thousands of dollars, so if you need the time, take the time.
Avoiding Penalties and Interest Charges
The primary goal of any tax extension is to allow the taxpayer or entity to file an accurate return. As stated earlier, though, the amount due to the IRS is subject to being paid on the tax deadline date, not when the extension is filed. For most companies, then, that means March 15th and for individuals, that means April 15th. Unfortunately, a lot of individuals and small businesses think that filing an extension will buy them extra time prior to paying their taxes. Not so – but the IRS offers several options. The first one is 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.
Filing a tax extension can be a practical way to reduce the stress of getting all your tax information collated and properly documented, but it is also important to realize that you cannot prolong the inevitable – you will have to pay what you owe and an extension will not stop that aspect of the tax filing process. Our advice? Keep your bookkeeping impeccable, have a professional prepare, and keep your financials up to date.
NOTE: Tax laws, rule and forms can change periodically. Please consult with the IRS website or a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.
By: Chris Groote
All rights reserved to: Bookkeepwithus.com