Not everyone is ready for tax season, some years can be rougher than others. That’s why tax extensions exist, and they are a great move by you if done right. It’s easy to extend your filing period, simply send in a completed Form 4868 – Application for Automatic Extension of Time to File.
This year if you filed an extension prior to April 18, 2017, you now have until October 16, 2017. The deadline may still seem far off, but time flies by fast and sooner than later that deadline will come up. If you haven’t gotten started on your tax returns yet, here’s a few tips to push you to file your tax returns.
Get Help with Filing Your Taxes
Filing your taxes can be stressful, especially when you don’t have everything ready. This includes not having all the documents required to complete a tax return. If so, use your extension time wisely to contact your employers throughout last year and other entities that owe you information.
Keep in mind that failure-to-file penalty is more than failure-to-pay penalty. Filing on time will help reduce the amount of interest and penalties that will stack, and will help you find payment options in time before the deadline hits.
If you haven’t already, seek out a tax professional to help you with your return.
Note – If you don’t owe taxes, usually there are no penalties for filing late. That is because penalties derive from the amount you owe. The only hit you take is that you won’t get your coming refund until you file.
What to Do with Your Tax Extension
Finish Up As Soon as Possible
Understand that a tax extension extends only the amount of time you have to file your taxes, it does not extend the time you have to pay. This makes it all the more important to get your tax return done as soon as possible.
While you may be waiting for potential tax deductions to pop up, they’re reasons to not hold out on filing after getting a tax extension. The IRS does not want to wait another 6 months before they get their money. The penalty is a 5% interest rate for each month or partial month, up to a maximum of 25% on your unpaid tax balance if not paid off by October 16.
If you are able to afford paying off your taxes, here’s what you can do:
Direct Bank Transfers – Set up a one-time online payment from your bank account directly to the IRS.
Pay with a Debit or Credit Card – You can pay online with either your debit or credit card, noting that there is a “convenience” fee for the transaction.
Mail-in or Money Order – If you file online, you can send in a check or money order with a Form 1040-V payment voucher in the mail. Make out your payment to the “United States Treasury” and include with it your Social Security Number, Phone Number, Tax Year and Tax Return Form Number on File. The correct addresses to connect with the IRS are here.
If you cannot afford to pay off your taxes in one go, here’s some options available:
Short Term Extension of Time to Pay – If you know you can pay off your owed amount within 120 days, you can argue with the IRS for a short-term extension of time to pay. Although you may be approved, the amount will still accrue interest and/or penalties until it’s fully paid off.
Installments – An agreement can be made with the IRS to pay off your taxes through installments. The IRS recommends this solution as this plan is a low-cost, hassle free way to pay off your debt, and is automated so you don’t have to worry about missed payments. This option is only open to those who owe less than $50,000 for the year.
Offer in Compromise – This option is a way to lower the amount of tax debt owed. As a last resort if you are not in a position to pay off your taxes as it would cause financial hardship, you can offer in compromise with the IRS. The IRS will only ever accept this option if they believe they can get the full amount out of you.
Don’t push back your tax returns to tomorrow, get it done as soon as you can to avoid interest on your amount owed. If you find something later, you can always file a Form 1040x amended tax return.