Tips for Filing an Extension on Taxes

Matt Shelly
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A tax extension provides individuals and businesses with extra time to file their IRS tax forms. Six-month extensions are available to all taxpayers regardless of the reason the extra time is needed. Filing an extension is a quick process that gives your clients more time to get paperwork in order to file properly.

Tax Day, which falls on April 15 for individuals and unincorporated businesses, is a strict deadline with real penalties for failing to file on time. When recommending a tax extension, make sure clients understand the implications of filing even a few days late. Some years the IRS delays the start of tax season due to changes in tax laws that haven't been put into the IRS computer system. Even when delays are in effect, the deadline stays the same. Delays give you less time to complete returns for the same number of clients. Always recommend a tax extension if you cannot properly complete a tax return by Tax Day.

Filing an extension on taxes is a quick process using the IRS e-file tool. The short, nine-question Form 4868 asks only for identification information and estimated tax liability. Always estimate liability realistically to avoid paying penalties. Also, the IRS reserves the right to disallow tax extensions if it appears that your estimation is unreasonable.

Tax extensions do not delay the date by which taxpayers are required to pay any tax due. Clients must pay as much of the estimated tax liability shown on the extension form as possible by April 15. Payments can be made by electronic funds transfer from a checking or savings account or by credit card. If a client cannot afford to pay the total estimated amount, it is still important to file the extension form. The penalties for not filing on time are higher than any interest on the portion of taxes not paid on time.

The tax penalty for failing to file a tax return or extension by April 15 is 5 percent of the total net tax liability for the tax year for each month or fraction of a month that a return is late. Filing for a tax extension can save your clients significant amounts of money. Failure to pay your total tax liability by April 15 results in a penalty of 0.5 percent of the tax due for each month or fraction of a month that it is owed. If both penalties are in effect at the same time, significant debt can accrue.

Avoid late-filing penalties and give your clients and yourself some extra time by filing for an automatic six-month tax extension with the IRS e-file tool. An extension buys time for gathering and organizing paperwork when delays from sickness or unexpected events occur. Ensure clients understand that an extension to file is not an extension to pay, and encourage a reasonable tax liability estimate to avoid further fees.

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