April 17, 2012 is an important date this year for taxpayers in the United States. Federal income tax returns are due that day along with payment for any taxes owed. While the deadline has moved a bit from the traditional April 15 date because of a weekend and the Patriot's Day holiday, one thing remains certain. The IRS has a due date and expects taxpayers to follow it.
But that deadline may arrive while a taxpayer is still waiting for important tax documents to arrive. Or a small business owner may be waiting for the company's tax return to be finished before their personal return can be completed. Or maybe the filer is travelling for business or out of the country on a work assignment. For those cases and more, the IRS offers a simple and automatic extension process that delays the filing deadline until October 15. The extension process delays the deadline for the paperwork, but it does not delay the payment of taxes owed.
How To Qualify For An Extension
Getting a tax extension is relatively easy. Simply filling out the extension paperwork properly or making a partial tax payment is enough to qualify for an extension automatically.
The Extension Process
IRS Form 4868 is the Application for Automatic Extension of Time to File a U.S. Individual Tax Return. It can be completed online and submitted electronically or filled out on paper and mailed to the IRS.
For taxpayers making quarterly estimates or paying some part of the tax bill, simply making those payments also ensures an extension.
No Extension On Payments
The deadline to file a return might be postponed to October, but the IRS expects its payment in April, or at least a good guess of what is due.
If the return is not going to be completed in time, a good place to estimate tax liability is to go back to the previous year's return and the taxes owed then.
However, the IRS has a rule of thumb for individuals and married couples filing together who make more than $150,000 a year. The estimate for those taxpayers is 110 percent of last year's taxes paid.
Tax estimates can be paid via the IRS e-file system with a credit or debit card, through a professional tax preparer or by mailing a check to the IRS.
For extension requests that aren't accompanied by a reasonable amount of the tax liability, the IRS charges interest. The interest rate fluctuates quarterly and is listed on the IRS website. The rate is based on the federal short-term interest rate plus 3 percentage points. For the first quarter of 2012 the interest rate being charged to individuals is 3 percent.
File Late Or Extend?
It is cheaper to extend a return than to pay the late filing interest penalty. The late filing penalty is 5 percent of the tax due and it is charged each month that it remains unpaid. The penalty paid isn't a credit toward the tax bill. It is added on top of it. And on top of the late filing penalty, late payment interest is accruing.
For filers who can't afford the taxes owed, the IRS suggests getting the paperwork in on time and then contacting them about a payment plan. The website offers a section on payment options and agents are also available by phone to discuss payment arrangements. Those agents won't be able to handle the actual extension filing. The IRS no longer allows extensions over the telephone.
Members of the armed forces who are serving in combat zones or have been deployed overseas are granted automatic filing extensions.
The automatic filing extension for the military also includes an extension for making tax payments, which is different from the standard procedure.
U.S. Citizens who live and work abroad are eligible for an extension that provides an additional two months to file and pay taxes. This requires filing Form 4868 and indicating that the taxpayer is out of the country.
Filing for a federal income tax return extension is a straightforward process and as long as the paperwork is filed correctly, it will be automatically granted. The IRS is serious about expecting tax payments on time, extension or not. For taxpayers who owe money, the best strategy is to estimate the taxes due and make sure that a substantial portion is paid to avoid penalties. For taxpayers who can't afford the tax bill, the IRS expects to see the return filed and a payment plan negotiated. An extension isn't considered a grace period for paying taxes, but it can be helpful in certain situations.