What Does a Personal Tax Extension Mean for You?

What exactly is a personal tax extension, and what would filing one mean for you? Keep reading to find out all of the important details.

What is a Tax Extension?

A tax extension is exactly what it sounds like - an extension to file your taxes. The extension period is 6 months from your original filing deadline. If your taxes are due on April 15th, this means that with an extension, you have until October 15th to get your taxes filed.

How Will a Tax Extension Affect You?

A tax extension filing is meant to offer you the benefit of extended time. The IRS recognizes that by the time you get some of the forms you need, it can be hard to just throw things together. And if your taxes are at all complicated with extra schedules, this can be even more challenging.

Whether you file on your own or use a CPA, you may just need some extra time. You can file Form 4868 for the additional 6-month personal tax extension or use an online filing service to file your tax extension electronically.

What are the Benefits of Filing a Tax Extension?

Avoid Late-Filing Penalties

One of the most obvious benefits of filing a tax extension is that it helps you avoid the failure-to-file penalty so long as you submit a tax extension request by the filing deadline for that year. 

The failure-to-file penalty is assessed for failing to file your tax return or submit a tax extension by the deadline and is a whopping 5% of the total taxes owed per month that your taxes remain un-filed. The penalty maxes out at 25% of your total taxes owed.

Save Money on an Accountant

Speaking of saving money, a good way to look for additional tax savings is by hiring a tax accountant. However, most tax accountants tend to raise their rates around the filing deadline.

If you file for an extension, you can wait to hire an accountant to help file your taxes until later in the year when their rates may go down. However, don't wait until the extended filing deadline, or you might find that their rates have shot back up.

Extra Time to Fund Self-Employed Retirement Accounts

While most retirement accounts must be fully funded by the filing deadline, you may be able to continue funding your tax-advantaged accounts through the extension deadline if you have one of the following types of accounts:

• SEP IRA
• Solo 401(k)
• SIMPLE-IRA

If you have one of these types of accounts and have not met the maximum contribution amount for the year, it's a no-brainer to continue funding the accounts through the extended deadline.

Protect Your Tax Refund

While it's true that you probably won't owe penalties for not filing your taxes on time if you're owed a refund, by not filing an extension, you may be risking your return. 

If you haven't filed your tax return within three years of the filing deadline, the IRS is no longer obligated to issue you a tax refund. However, if you file a tax extension, then that 3-year term is extended by six months.

Get Extra Time to Avoid Mistakes

Making a mistake on your tax return could be detrimental. Even small mathematical errors can add up to big fines and penalties. If the filing deadline is approaching quickly, there's no reason to rush through your Form 1040. Instead, file an extension to get extra time to do a thorough check of your tax return and ensure that you didn't make any errors.

What Should I Do After Filing a Tax Extension?

Confirm Your Extension Has Been Accepted

Barring any major errors in submitting, most Form 4868s are accepted by the IRS. If you file your tax extension online, then you should receive an approval notification within 48 hours. 

If you file via mail, you'll need to call the IRS to confirm that your Form 4868 has been received and approved.

Check Your State Requirements

Most states will automatically extend your state return deadline if your federal extension is approved. However, you should double-check your state's tax website to see if you need to file a separate state extension if you want an extension on your state tax filing, as well.

Collect Any Tax Documents You Need to Complete Your Return

One of the hardest parts of completing Form 1040 is collecting all of the documents you need. While you don't need to start collecting them the minute you file for a tax extension, you should start within a few days of submitting your extension. That way, you’ll have ample time to request documents should you not be able to find them.

Some of the most common documents people need to file their Form 1040 include:

• Last year's tax return
• Income statements like W-2s or 1099s
• Proof for claiming any credits or deductions
• Proof of estimated tax payments

Submit Your Tax Return When You're Ready

While you don't need to rush to submit your tax return after filing for a tax extension, you also don't need to wait until the extended filing deadline to file. Once you've had time to thoroughly complete your Form 1040, go ahead and submit it so you don't have to think about taxes for another year.

How to File Your Tax Extension

There are three main ways to file your extension.

• Do it yourself using online software
• Use a CPA or tax professional to file
• Print and mail the extension form to the IRS

How you decide to go through the process is up to you. Remember that you need to pay estimated taxes when you file the extension. If you anticipate a refund, you won't need to pay anything now.

File the tax extension on time to avoid any penalties.

Will I Have to Pay Penalties for Filing an Extension?

No, filing a tax extension actually helps you avoid the late-filing penalties for filing your taxes late.

Will Filing an Extension Make Me More Likely to Be Audited?

Filing for a tax extension does not make you more likely to be audited by the IRS.

Some of the most common reasons that the IRS will audit a tax return include:

• Making math errors on your Form 1040
• Not reporting all of your income
• Claiming an unusually high amount of charitable donations
• Reporting a large amount of losses on a Schedule C
• Over-deducting business expenses
• Claiming the home office deduction
• Using round, neat numbers

So, you can file an extension with confidence, knowing that it won't impact your chances of getting audited.

Can I Get a Second Tax Extension?

Unfortunately, aside from a few unique circumstances, you are only able to file one tax extension per tax year. Therefore, the extended filing deadline for your tax return is usually a hard cutoff for when you need to file your tax return.

Can a Resident Alien File a Tax Extension?

If you’re a resident alien, you are able to request a tax extension. 

In fact, due to the complications of submitting your taxes as a resident alien, it's actually recommended that you submit a tax extension. This will give you extra time to go through the intricacies of filing your taxes as a non-U.S. citizen.

Does Filing a Personal Extension Also Extend My Business Tax Deadline?

If you own a sole proprietorship or a single-member LLC, then filing a personal extension also extends the filing deadline for your business! Therefore, when calculating your owed taxes on your tax return, you should also account for any taxes or deductions included in your business taxes.

If you own any other type of business, then you will need to file a separate form to request a tax extension. Learn more about filing a tax extension for your business by reading our article on filing a tax extension for a limited liability company.

Conclusion

Even if this is only a one-time situation, you should use extensions when you need them and give yourself an extra six months to file.

You don't have to figure out the steps alone, as taxes can be overwhelming for many. If you’re considering an extension, we can help you get the process started.