Extension doesn't delay paying taxes.
Thank goodness the tax code allows for procrastination and the things in life that happen, including events that are out of your control.
You can achieve a reprieve by filling out IRS Form 4868: "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return." The extension gives you six extra months to file your return.
There are a number of reasons you might need more time, even though the tax deadline falls around the same day every year -- April 15.
Nearly one in 10 taxpayers file for an extension, and most of them now do it online, according to Eric Smith, a spokesman for the IRS. "We are projecting over 14.6 million extension requests this year," he said.
So, what's the No. 1 reason many people want an extension?
"They are not prepared to pay," said Deenice Galloway, a tax professional based in Maryland.
But then they get a shock.
"No, the extension doesn't give you more time to pay," Galloway says she has to tell people. "It doesn't stop the interest or the penalty. "
Although the IRS gives you more time to file your return, you are still required and expected to pay any and all taxes that you owe by April 15.
Galloway said that, in her practice, about 95 percent of taxpayers who end up needing to file for an extension are unaware that it doesn't come with a postponement of what they owe.
"I recommend people make a payment with their extension and ask for a payment plan," Galloway said.
Because the extension doesn't give you more time to pay, you have to estimate your tax liability. But how do you know how much to pay if you haven't finished your tax return?
"Actually, by looking at prior-year returns you can estimate how much you may owe," Galloway said. "Even if you don't have all your tax documents, you can get a rough estimate by looking at your salary and expenses from the previous year. Generally, if you owe one year, you owe the next."
It may sound counterintuitive or even scary, but even if you can't pay, file your return on time or ask for an extension.
"If your return is done, there's no reason to wait, even if you can't pay," Smith said. "Tax returns are not like wine. They don't get better with age."
By filing a complete and accurate return by April 15, or sending an extension request, you stop the late-filing penalty. "That's 5 percent per month, and it builds up fast," Smith said. "It's also ten times the late-payment penalty, which is, by comparison, just one-half of one percent per month."
If you can't pay your total debt, pay as much as you can, because it can help you qualify for "reasonable-cause relief" from the late-payment penalty, Smith points out.
So, if you need more time for whatever reason, take it. Just be sure to file for an extension, and keep in mind that Uncle Sam still wants his money by April 15.
(c) 2019, Washington Post Writers Group
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|Publication:||Daily Herald (Arlington Heights, IL)|
|Date:||Apr 14, 2019|
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