When you have trouble getting your tax return completed on time, you can file an income tax extension.
A tax extension gives you more time to fill out your required paperwork. For individual taxes, an extension gives you an additional six months to submit your completed tax return. In the case of businesses, it varies from five to six months, depending on the business structure. The extra few months gives you time to find old receipts, make copies, fill out forms or contact a tax accountant for help.
Sometimes people must deal with an emergency. An unexpected illness or hospital visit makes it hard to concentrate. Less-than-positive news at work might cause delays. With an extension, you have a full six months to deal with those issues and not worry about paying a late-filing penalty. This amounts to 5 percent of the amount you owe, added to your tax balance for each month you don’t file.
The process is very simple. Here’s what to do.
Businesses follow roughly the same process to fill out a tax extension application but use a different form: IRS Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. Business owners need to include the business name, address and other pertinent details, including the Employer Identification Number, or EIN. Verify the number is correct; a mistake usually means a rejected application.
Business extensions are automatic. However it should be noted that certain businesses, such as sole proprietorships and independent contractors, actually need to file Form 4868.
Some people believe that a tax extension means they don’t have to pay taxes until October. But a tax extension only gives you extra time to organize your documents and submit your tax return. Payment is still due on your normal tax date. If you don’t pay, you’re liable for customary late-payment penalties. How much is that? It’s 0.5 percent of the taxes you owe per month — up to a maximum of 25 percent — until the debt is payed.
Avoid late-payment penalties by paying your tax bill with a low-interest credit card.
Extra relief for some
Some people receive an extension automatically. If you fall into one of these categories, breathe an extra sigh of relief.