Recently I Interviewed Mark Steber, Chief Tax Officer at Jackson Hewitt. The interview focused on last-minute tax tips, but he also discussed some tips on how to file an extension of time for your income tax return.
Filing for an extension is a simple process for the most part. That is, as long as you do it right, and you don’t make some common mistakes.
Use IRS Form 4868 to File for Your Extension
To get an extension of time to file your income tax return you must complete IRS Form 4868 – Application For Automatic Extension of Time To File U.S. Individual Income Tax Return. It must be postmarked no later than April 18, 2016 (April 19, 2016, if you live in Maine or Massachusetts) according to the form. Once filed, the extension will be good for six months, all the way out to October 15 (for 2016 it’s actually October 17 because the 15th falls on a Saturday).
Fortunately, Form 4868 is one of the easiest tax forms to complete. You only need to fill in your name, address, and Social Security numbers for you and your spouse, if you are married and filing a joint return.
There are just four lines on the form that request financial information:
- Estimate of total tax liability
- Total tax payments (this includes federal income tax withholding, tax estimates paid, and refunds credited from prior years)
- Balance due
- The amount you are paying
That’s all there is to it. You don’t even need to provide a reason why you are requesting the extension. You also don’t need to sign or date the form – just complete it and mail it in (or file it electronically).
Be sure that you mail the form to the right IRS address! There are eight IRS centers that accept Form 4868, and which one you need to send it to will depend on what state you live in. Be certain that you use the IRS center addresses that are provided on the form’s instructions, as they do change from year to year.
For 2015 taxes, Form 4868 provides the following addresses:
The Extension Is An Extension of Time to File Your Return – Not to Pay Your Taxes
The most important fact about filing for an extension – one that taxpayers don’t always fully comprehend – is that the extension is an extension of time to file your return, not an extension of time to pay your tax liability.
This means that you will have to make a reasonable estimate as to what your liability will be for the entire tax year, and then match that up against the amount that has already been paid. If the amount paid is insufficient to cover the liability, you will need to send any additional funds with the extension to make sure that your tax liability is fully paid.
Penalties For Late Filing or Late Payment of Taxes
If you fail to file your extension request by the due date, you’ll be subject to a late filing penalty. The penalty is usually 5% of the amount due for each month (or partial month) that your tax return is filed late. The maximum penalty is 25% of the unpaid tax balance due. If your return is more than 60 days late, there is a minimum penalty of $135 or the balance of the taxes due on your return, whichever is smaller.
You might be able to have the late filing penalty waved if you have a “reasonable explanation” as to why you filed late. You will have to attach the explanation to your actual tax return, and not file it with the extension request form.
If you owe additional taxes – over and above that which was paid with your extension request – you will be subject to a late payment penalty. This penalty is currently ½ of 1% of any tax (other than estimated tax) that is not paid by April 18, 2016. And it is charged for each month, or partial month, that the tax remains unpaid. The maximum penalty is 25% of the tax balance due.
As with the late filing penalty, you may be able to have the late payment penalty waived for good cause. Once again, you will have to attach a statement to your final tax return providing a reasonable explanation for the delay in payment. And again, the statement should not be attached to your extension request.
In addition, the IRS considers that reasonable cause exists if at least 90 percent of your actual tax liability has been paid as of the due date. The 90% is comprised of withholding taxes, estimated tax payments, or payments made with your extension.
Your State May Have Different Extension Rules
There’s one other very important caveat when it comes to extending your income tax return. Your state may have different rules. Many states accept your federal extension as an automatic extension for state purposes. But not all do. You’ll have to check with your particular state to determine if you’re required to file a state specific extension request.
And as is the case with your federal income tax liability, an extension to file your state income tax return, whether it is satisfied by your federal extension or by state specific forms, does not represent an extension of time to pay your taxes. You will have to pay your tax liability due to the state when you file for the extension of time, or you will face penalties and interest with those tax agencies as well.
You May Be Just a Document Away From Filing Your Return On Time
Though filing for an extension of time to file your taxes is a simple process, it’s not without its gotcha provisions, as noted above. For that reason, it’s always best to file your returns – both federal and state – by April 15th.
You may find that you’re only one or two documents short of having all of the information that you need to file a complete income tax return. If that’s the case, get the necessary document(s) and get your returns filed by the due date if at all possible. Not only will that avoid penalties and interest, but it will enable you to go forward with a clear head, knowing that last year’s income taxes have been filed.
And in case you missed it, here’s my interview with Mark Steber: