By Ellen Chang, Contributor
May 10, 2021
You may need to file a federal tax return extension for many reasons, including delays in receiving tax statements, living in another country—or you simply need more time getting organized.
If you file a tax extension, your tax return’s deadline is Oct. 15 and is unchanged from previous years, even though the IRS automatically extended the individual tax deadline to May 17 due to the coronavirus pandemic. Residents and businesses of Louisiana, Oklahoma and Texas who were impacted by the February storms and blackouts had their deadline extended by the IRS until June 15.
Filing for an extension is free and simple. Taxpayers can complete the extension request form through the IRS Free File website. The official form to request an extension is Form 4868 and it is less than half a page long—and all extensions will be applied automatically.
“The request form is automatic, so taxpayers do not need to wait for any sort of approval confirmation once the form is submitted,” said Nell Curtis, an accounting instructor at Milwaukee Area Technical College in Wisconsin.
Common Reasons to File a Tax Extension
Most people who request an extension for filing their tax return have more complicated taxes than, say, Americans who receive a W-2 from their employer and a handful of forms for mortgage interest and student loan interest, so the extended time allows them to gather the necessary information and documentation to file an accurate return.
But importantly, the extension applies to filing the return only, not to the payment of the taxes. You will still owe any taxes due by your tax filing deadline.
“Taxpayers need to make tax payments by the original filing deadline based on their best estimate of what the tax will be,” Curtis says. “This is the biggest mistake that taxpayers make, is thinking that the extension applies to the payment of the tax as well. However, failing to pay taxes in time can result in penalties and interest charges.”
According to Kevin Matthews, an accounting instructor at George Mason University, some common reasons to file an extension include:
- Receiving tax statements late, such as W-2s and 1099s late
- Receiving tax statements that need to be corrected
- You live outside the U.S.
Common Mistakes People Make When Filing a Tax Extension
In 2021, most taxpayers must make their tax payment by the original filing deadline of May 17—even if they file for an extension.
“This can be a common mistake people encounter, but the tax filing extension is just that, a filing extension, not a payment extension,” says Daniel Fan, managing director, head of wealth planning at First Foundation Advisors, an Irvine, California-based financial institution. “It is clearly stated by the IRS on the instructions and their website that an extension of time does not provide an extension for paying the taxes.”
Another major misconception is filing a tax return extension will increase the chance of the return being audited, Matthews says.
“In my 20 years of working on taxes, I have not seen significant evidence of this,” he says. “People extend for all kinds of reasons and the IRS permits it.”
If you are filing a paper return extension, make sure you mail it to the right address.
“Sometimes people accidentally send [their paper return] to the wrong place. This can cause either a delay in processing or it could not be processed at all, which will cause you to have a failure to file penalty (a penalty of 5% per month), so make sure it is mailed to the correct place,” Matthews says.
Start working with your tax preparer, a CPA, Enrolled Agent or a tax attorney at least 15 days before the tax deadline to get the extension payment calculated.
“Reaching out 15 days out allows them to get your extension payment calculated early enough to let you know and gather the cash,” he says. “Nothing is more frustrating to a tax professional than going to them one to two days before the deadline and asking for an extension payment calculation. Remember, they have likely been working 10-14 hour days for weeks and the deadline is the light at the end of the tunnel.”
By Ellen Chang, Forbes Contributor
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