I’m that insufferable friend that does their taxes in March.
When the rest of my friends scramble to do their taxes the night before April 15, I’m giggling to myself. Not only do I sit back and relax while they scramble to find everything, I already received my refund. Every year, it feels glorious.
But one year…
I messed up.
Work got crazy, I waited too long to schedule a meeting with my accountant, and then a last minute emergency sealed the deal.
There was no way I was going to file my taxes on time. I was going to have to get a tax extension. I expected a horrible process but it turned out to be pretty easy. I got the time I needed and avoided any penalties from the IRS.
If you’re in a similar situation, I’ve covered the entire process below.
What You Should Know Before You File an Extension
State and Federal taxes are due on April 15, every year. Turning your taxes in late can result in fines and late fees. The IRS considers your taxes late if you don’t file and pay taxes owed by tax day.
If something comes up and you can’t meet the deadline, file an extension. The last thing you want is to rack up late fees and interest. However, it can take a little time to process the request, so you’ll want to file as soon as you know you’ll be late to ensure that your request is filed before the tax deadline.
Remember that this information is for federal tax extensions only. Each state has its own requirements for filing an extension. So you’ll need to figure out the requirements for that process too.
Before you file a tax extension, there are a few other things you should be aware of.
The extension doesn’t apply to money owed
The IRS will allow you to file your taxes up to six months late. However, they’ll want their money by the tax deadline. You can send in an estimated payment but you could be on the hook for interest if your estimated payment was less than what you actually owe.
There are late payment penalties, even if you file an extension
If you file your taxes on time but don’t pay your taxes owed by the April 15 deadline, the IRS will charge you 0.5% on the taxes each month. Owed taxes also accrue interest, compounded daily, at 5%. These payments get hefty fast. Even if you file late after getting an extension, I’d still pay an estimate on time.
You’ll have to pay a penalty if you don’t apply for an extension
If you’re getting a tax refund, there’s no penalty for filing late, though you should file within three years to avoid losing potential returns.
If you file your return or an extension by the tax deadline or you failed to file your taxes by the extended deadline (October 14, 2020), you’ll pay 5% of the amount owed each month, with a maximum of 25%.
If you file your taxes more than 60 days late, you’ll be charged $210 or 100% of your total tax owed (whichever is less), according to the IRS.
Some citizens qualify for an extension without having to apply
The IRS automatically allows an extension for certain situations including for deployed members of the military, families, individuals affected by natural disasters, and individuals who work outside the country. Most automatic extensions are up to 90 days, though the IRS may extend that to 180 days for certain situations.
There are a lot of reasons people apply for extensions
There’s a misconception that having to file for an extension means that you’re disorganized or irresponsible. However, many businesses know they’ll have to file late every year. If you’re a freelancer or work with partnerships, you may need to file late because you know your tax information won’t make it to you before the deadline.
If you apply for an extension before the deadline and make a good faith effort to pay your estimated taxes owed by the April 15 deadline, you have little to worry about. The IRS won’t ask you why you’re filing an extension, and it’s always best to file when you have a clear mind and a little time to focus. So whether you’re dealing with a death in the family, recovering from an illness, or just need a bit more time to double-check your numbers, filing an extension can be extremely helpful.
Steps to File Online Via Tax Software
If you already use tax software, you can probably file a tax extension using that program. Many online tax services offer the option to file an extension for free.
Step 1: Estimate the amount of taxes you owe
When you submit an application for extension, you should also submit a payment for your estimated taxes owed. If you don’t pay at least 90% of the total owed, you will be charged a late payment penalty and interest on any amount you owe.
To determine an estimate of how much you owe, you can visit the IRS website and use their calculator. You will need to know how much you earned (or a close estimate) in a given year and the amount of taxes already withheld or that you already paid (if you’re self-employed). You can use numbers from your last pay stub if you haven’t received a W2 to get an estimate.
The form will also ask whether you contributed to a tax-deferred retirement account and/or an HSA or FSA account. Once you’ve completed the questionnaire, the website will provide you with an estimated number.
Alternatively, you could figure out your estimate manually. To do this, you’ll need to know your total taxable income (wages, tips, bonuses, alimony etc.) and your adjusted gross income (your taxable income minus student loan interest, moving expenses, contributions to an IRA, medical insurance fees, etc.)
Once you have your adjusted gross income, subtract any deductions including medical and dental expenses, charitable donations, etc. Use the IRS table to determine your tax liability. (Don’t forget to account or dependents which can reduce your tax responsibility).
Subtract the taxes that you’ve already paid this year (check your W2 or last pay stub for an estimate) from your tax liability. The difference between what you paid and your liability is what you owe. If the number is negative, you qualify for a refund.
Step 2: Complete Tax Form 4868
You will need to complete a tax form requesting an extension from the IRS. The form is available through most tax software companies. You can also download the form from the IRS website.
Information you’ll need to provide on this form includes your name, address, social security number (and spouse’s social security number), an estimate of how much you owe and the payment amount you’re making at the time of submission.
Step 3: File and Pay
Once you’ve completed the form, you can submit the extension form via e-file through your tax software. Some tax programs even allow you to make any tax payments directly from your bank account.
Don’t forget to print off a copy of the form for your own records.
4 Steps to File Online Manually
If you want to file your extension manually, it might take a bit longer but it’s still simple. Here are the four steps it takes to submit your request for a tax extension manually.
Step 1: Get the Right Form
To file a request for an extension from the IRS, you’ll need to get your hands on IRS Form 4868. You can get the form from the IRS website. You can print it off and fill it out as needed. You may also be able to pick up a Form 4868 from your local library or post office.
Step 2: Fill out the form
Once you have the correct form for filing an extension in hand, just fill out a short form requesting the extension. The document is four pages long but the portion you need to fill out only takes up a quarter of a page.
You’ll be asked your name, address, social security number (as well as your spouse’s social security number if you’re filing jointly), an estimate of your total taxes owed, and how much you’ll be paying when you submit the form.
Step 3: Submit payment and form
If you choose to mail your extension request, make sure you allow enough time for your extension to get to the IRS via snail mail. You can submit a check or money order with your extension application or pay online. If you pay online, you’ll be asked to include a confirmation number on page 3 of the extension form.
Page four of Form 4868 provides the mailing address for where to send your extension requests and payments if you opt to print the form off and mail it.
You can file your form electronically via the IRS e-file. Simply fill out the form, including a confirmation number for any payment, and submit the payment through e-file. You can find e-file on IRS.gov.
Step 4: File your taxes
A tax extension gives you until October 15, 2020, to file your tax forms. You can file your taxes online or via regular mail. If you owe more than your estimate, you should submit that payment plus any interest as well.