We’re reminded every year on April 15 that the only things certain in life are death and taxes. At least we only face death once. As to taxes, that’s a yearly dread, at least to those who actually have to pay income taxes to the Federal Government.
The latest statistics show that the number of individuals and married couples who do not need to pay any federal income tax has risen to 45.3 percent. That’s five percent higher from the original estimate two years ago.
For the remaining 54.7 tax payers who earned enough income to have a tax liability due on April 15, the deadline is drawing near. There is one legal out, however, from filing you return on that date.
It’s called a federal tax extension. Here’s how it works.
What Is a Tax Extension?
The extension allows you an extra six months, or until October 15, to file the return. It does not extend payment for any taxes you might owe the Internal Revenue Service, however. That amount is still due on April 15
How does it work?
If you are unable to complete your tax return for mailing by April 15, you can fill out IRS Form 4868 titled Application for Automatic Extension of Time to File U.S. Individual Income.
You should have completed enough of the return to know what the amount of your tax liability is, however. That payment amount and the extension are due in the mail by midnight, April 15. Because Federal tax extensions are automatic,you are not required to sign the form.
What if I underpaid the actual amount of tax due?
Because the finished return was not ready for mailing by the April 15 deadline, the IRS understands the amount is probably an estimated amount. As long you pay at least 90% of your actual tax liability on time, you can avoid any late payment penalty.
How Do You File for a Tax Extension?
You must either mail your extension request or transmit it via the internet no later than midnight, April 15 to avoid late filing penalties
There are 3 main rules you need to follow in order to file the extension properly.
- Estimate your tax liability using all of the information available to you at the time the extension is mailed,
- State your total tax liability on line 4 of Form 4868.
- Be sure to file the form and any moneys due by the regular due date of your return.
What if I under estimated my tax liability?
If you don’t pay enough estimated income tax, you’ll have to pay a penalty. The penalty is equivalent to nondeductible interest on the amount you underpaid, for the period of the underpayment. If you underpay only a small amount, or you correct the underpayment quickly, the penalty will be small.
What is the penalty of underpaying my income tax liability?
The penalty for underpayment of estimated tax is figured the same as interest. The IRS charges you interest for each month between the extension filing and the date you filed the final return. The interest rate is adjusted annually based on market interest rates.
The Internal Revenue Service will calculate the penalty due and send you bill for the underpayment amount due plus the penalty incurred. Each month that you delay in paying that bill will incur additional interest.
It’s obvious the best way to handle your income tax return is to file on time. But because the tax codes have become so complicated, it’s understandable that filing extensions are sometimes necessary. As long as you fulfill your obligation to pay the taxes due on time, the extension process offers you some breathing room in actually filing he return.