Tax submission deadline is just around the corner. If you have not filed your tax return yet, you might as well file an extension if you anticipate not being able to beat the deadline, which is April 17. The penalty for not filing your tax return or an extension by the deadline is a significant 5% per month up to a maximum of 25% of the amount of tax due on the late-filed return. So to avoid having to pay the IRS so much in interest payments, you need to file for an extension that would give you another 6 months, up to October 17 to submit your tax return.
To file for a tax submission extension, you need to fill and file Form 4868, Application for Automatic Extension for Time to File U.S. Individual Income Tax Returns. You will be granted the 6 month extension automatically provided you submit Form 4868 before the April deadline.
But having more time to submit your tax return does not mean you have the same extension to pay your taxes. You must pay at least 90% of the estimated amount of your taxes when you submit your Form 4868 in order to avoid being penalized for late payment. This 90% can be totaled from your withholding, estimated tax payments and what you pay with the extension. You will be charged interest on the balance of unpaid taxes until you have fully settled all your tax liabilities. If you do not wish to pay any interest at all, you need to pay up all your taxes by the April deadline. Interest charged on late payment is 4%.
By filing an extension, you will have more time to properly craft your tax return so that you take advantage of all the credit you qualify for. Furthermore, if your tax case is not straightforward, you are going to want to make sure you have all your facts and figures and supporting documents in order before you submit your tax return. This would be especially true if you have special situations such as the sale of property, exercise of stock options or cancellation of debt income etc.
Many people hire professional tax preparing services and it would not be uncommon to find tax preparers swamped with more work than they can handle. So if you tax preparer is not able to finish preparing your taxes due to the volume of work on his hands, it is imperative you file an extension. You would not want to rush him and risk slip shod work in preparing your taxes.
Filing an extension on your federal tax returns also means you need to file an extension for your state tax return. However, filing an extension is free of charge and doing so would not increase your chances of being audited.