Thinking of Filing for a Tax Extension? Here's What You Should KnowSubmitted by Blue Chip Financial on March 30th, 2022
Unlike the summer family reunion and work meetings, you can always count on a few specific dates every year. Days like birthdays, holidays, anniversaries, and Tax Day. But even if April 18th is hardwired into your brain and calendar, sometimes it makes more sense to file for an extension instead of the tax deadline.
Here are a few things to consider if you’re thinking about filing for a tax extension.
Gather Your Papers
Compiling tax documents and necessary information can be tedious, especially if you’re a freelancer or run your own business. If you have a lot of paperwork to compile, had documentation arrive late, or have just had a lot of personal changes in the last tax year, you may want to give yourself a few extra months to file.
If you aren’t able to fill out your taxes in their entirety by April 18th, be sure to file IRS tax form 4868, Application for Automatic Extension of Time, to extend your deadline up to six months. For individuals, you can file this form online through the IRS Free File portal.
Skip the Fees
You’re already paying taxes. Do you want to pay the government more because you missed the tax deadline? Even if you have a valid reason, missing the deadline can cost you. If you file late, be prepared to pay up to 5% of the taxes due for every month your taxes are late, up to a maximum of 25%. If you get your paperwork 60 days after the due date, you’ll face a penalty of all your unpaid taxes or $435, whichever is smaller.
If you’ve moved across the pond in the last tax year, it may be advantageous to extend your time to file, especially if you haven’t qualified for the foreign earned income exclusion yet.
Consult a Tax Professional
The American tax system has a lot of rules and regulations that affect how much you owe in taxes. A tax professional understands these complexities and may be able to help reduce the taxes you owe.
An extension doesn’t exclude you from paying taxes. If you do file for an extension, you have a couple of options:
- Pay the estimated taxes you owe by the tax deadline.
- File and not pay until your later due date.
It’s recommended that you pay by the deadline so you avoid interest and penalty percent on underpayments for every month you’re late. Your current documentation and last year’s documents will give you an idea of what you owe, but if you have questions or need guidance, talk to a tax professional.