How to file a tax extension

Young father, sitting at kitchen table with his toddler daughter in his lap, wondering how to file a tax extension. Young father, sitting at kitchen table with his toddler daughter in his lap, wondering how to file a tax extension. Image:

In a Nutshell

Tax Day is one stressful deadline you don’t want to miss. But what should you do if you know you won’t be able to file your federal income tax return by the deadline? Here’s how to file a tax extension.

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Tax Day is approaching, and you don’t think you’ll be ready to file your federal income tax return on time.

What should you do?

When you can’t make the filing deadline (April 17, 2018, for your 2017 federal income taxes), you can ask the IRS for an extension. In most cases, the IRS can grant an automatic six-month extension. Here’s how to file a tax extension.


No questions asked

You might think you need a really, really good reason to convince the IRS to let you postpone filing your tax return for six months. But you don’t.

In fact, the IRS says you don’t have to explain at all.

Whether you’re missing a form you need to complete your return, will be on vacation on Tax Day, or just can’t face the paperwork right now, you can probably get an extension. However, you must follow the rules on how to file a tax extension.

Even though you don’t have to justify yourself to the IRS, there are still good reasons for filing for an extension and not-so-good ones.

The good

“One of the best reasons for filing a tax extension would be if you’re waiting on forms you need in order to file,” says Matthew Szymczak, president of Premier Tax & Consulting in Fort Mill, South Carolina. “For example, if you’re a partner in an S-Corp or LLC, you may need to file an extension if you’re waiting on your Schedule K1 that shows your share of income, deductions, credits and other tax-related information. Brokerage accounts can also cause delays. They can be amended multiple times and cause some headaches, so they’re a further reason to file an extension.”

You may also file an extension as part of a tax-planning strategy. “An IRA conversion is a good example of this,” he says.

Converting a traditional IRA to a Roth IRA could yield tax benefits that you’d like to apply to your 2017 taxes, but you may need more time to accomplish the conversion.

“Life-changing events like a death, birth of a child, natural disasters, etc., are also good reasons to request an extension,” Szymczak adds. The stress and time-demands of dealing with these events may make it difficult for you to give your taxes the attention needed to do them properly.

Or you may just want more time to review your particular tax situation and make sure you’re taking advantage of every deduction and credit available to you.

Finally, the best reason for filing an extension is to avoid the penalty for filing a late return. If you fail to file your return on time, and also don’t file an extension, the IRS can impose a penalty of 0.5 percent per month on the amount you owe (up to 25 percent of unpaid taxes). The charges start the day after your return was due.

However, if you file an extension and pay your taxes at the same time, you can avoid the interest and penalties. Of course, if you file for an extension and don’t pay estimated taxes on time, you’ll have to pay interest on any unpaid taxes from the due date of the return until the date of full payment. Speaking of which …

The bad

“There’s really only one very bad reason to file an extension, and that’s thinking you can ‘kick the can down the road’ without any repercussions,” Szymczak says. “But filing an extension doesn’t mean you have extra time to pay your taxes. And delaying paying your taxes is a very bad idea.”

If you’re asking for an extension because you feel like you can’t deal with a tax bill right now, “a better alternative would be to file the return and request an installment agreement, which will allow you to pay the tax owed in monthly increments until it’s paid,” he says.

However, interest will continue to accrue on unpaid taxes until you make your last payment no matter what. This is why preparing for your taxes throughout the year is crucial — no one wants to pay more in taxes and interest than they absolutely have to.

 

How to file a tax extension

To get a tax extension, you must make your request by Tax Day. If you don’t request an extension by that day and fail to file, you could face the penalty for filing late.

You have three ways to make your request.

  • Go to IRS.gov/payments and use IRS Direct Pay, the Electronic Federal Tax Payment System, or a credit or debit card to pay all or part of your estimated federal income tax for 2017. Indicate that the payment is for an extension. If you do this, you don’t need to file any additional forms. Your extension should be automatic, and you’ll get a confirmation number for your records.
  • E-file Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Tax Return. Credit Karma Tax™, the free online tax filing service, supports this form.
  • Complete and mail a paper Form 4868 and include payment for the estimated 2017 tax you expect to owe. Remember to mail the form in plenty of time for the tax filing deadline.

Postpone filing, not paying

In case you missed it earlier, consider this statement to be rendered in 5-foot-high flashing red lights: A filing extension is not extra time to pay your taxes.

If you’re approved for a filing extension, you have until Oct. 17, 2018, to file your 2017 federal income tax return. However, your 2017 federal income taxes are still due on April 17, 2018. Not paying your taxes on time will result in interest charges and possibly penalties. This means that you’ll want to try to pay estimated taxes by Tax Day.

To estimate how much tax you owe, you can use the worksheet provided in Form 1040-ES. You don’t have to file the form to get a tax extension, but the worksheet can give you a good estimate of how much you should pay on Tax Day. Income information, deductions and credits from your 2016 tax return can also help in estimating your 2017 obligation.

Or “if you know you’re going to owe and aren’t sure how much to pay with the extension to minimize any interest and penalties, you can seek professional advice to estimate that amount,” Szymczak suggests.

The IRS offers tips for choosing a tax professional, and you can check out the website of the National Association of Tax Professionals to find a paid preparer.

If after estimating your taxes, you find you owe more in 2017 than you expected, consider checking out the IRS Withholding Calculator to plan for next year. The tool can help you make withholding decisions and estimate payments to help ensure you get the outcome you want next year at tax time.

Special circumstances

Certain situations may alter the duration of your tax filing extension.

Generally, if you’re a U.S. citizen living outside the country or serving in the U.S. armed forces outside the U.S., you automatically get two extra months to file and pay your taxes. Not sure if the IRS would consider you to be living outside the country? If your main place of work is outside the U.S. and Puerto Rico, or if you’re in the armed forces serving outside the country and Puerto Rico, you’re considered to be living outside the country.

However, you will have to pay interest on the unpaid taxes, and you’ll need to explain how you meet the criteria for this extension. Alternatively, if you pay your estimated taxes on time, you can get the same six-month automatic filing extension as if you were living in the U.S.

People who have been affected by a disaster in designated Presidential Disaster Areas may also qualify for tax relief. For example, victims of the wildfires, floods, mudflows and debris flows that struck California in December 2017 may be eligible for an automatic filing extension to April 30, 2018. Click this link to learn more about qualifying disaster areas.


What if you need an extension for your state return?

If you also need more time to file your state return, be aware that rules vary by state. Some states recognize the federal extension and automatically grant you a state extension too. Others have separate requirements.

Be sure to check with your state to see what you need to do to get a state filing extension. You can usually find this information on a state tax website, or in the state’s individual income tax instructions.

Paid with your extension? What to do when you file your return

If you wisely made a payment when you filed for your federal income tax return extension, remember to claim your credit for it when you do file your return. You’ll need to include the amount you paid somewhere on your return. For example, if you file a 1040, you’ll enter the amount you paid on line 70 for your 2017 return.

The instructions on your tax return will tell you how to report the payment.

Bottom line

If you just can’t make the April 17 deadline for filing your federal income tax return, you can probably get an automatic six-month filing extension — no questions asked. However, just because the IRS allows you to postpone filing your 2017 tax return, doesn’t mean you get a pass to pay your taxes later.

Your 2017 federal income tax bill is due on Tax Day, which is April 17, 2018. If you want to avoid penalties, be sure to pay on time (even if it’s just an estimate), regardless of when you’ll be ready to file.

Finally, keep in mind that the potential penalty for not filing on time is more than the penalty for not paying on time. Now that you know how to file a tax extension, you can avoid the penalty for filing late.