It's not unusual to have taxes on the brain in April, when returns come due. But if you filed a tax extension earlier this year, now's the time to start focusing on that return so you're able to submit it by the Oct. 15 deadline. And the sooner you begin cranking out your taxes, the smoother the process is likely to be.
How tax extensions work
The purpose of a tax extension is to buy yourself more time to submit your return if you're not ready by the original April deadline. If you don't owe money to the IRS, getting your return in late isn't particularly problematic. Rather, it's when you owe money that filing late becomes an issue, since doing so can come with harsh penalties.
Luckily, you don't need a particular reason to file an extension. All you need to do is submit the right form and the IRS will automatically give you another six months to get your return in without imposing a failure-to-file penalty, even if you do owe the agency money.
One major reason that so many people wind up needing extensions is that they simply procrastinate on their taxes and then panic at the last minute. If you've been guilty of that in the past, consider this your friendly warning to get moving on those taxes immediately.
Remember, the more you're forced to rush through your taxes, the more likely you are to make a mistake. And that could lead to a world of trouble. For one thing, you might forget to report side income that the IRS has on file (such as freelance earnings recorded on a 1099 form). If that happens, your return will likely get flagged for an audit, thereby opening all of it up to further scrutiny.
Furthermore, if you leave yourself little time to complete your tax return, you risk missing out on key deductions and credits that could lower your IRS bill. Remember, while some deductions, like your IRA deduction, are easy to calculate (you'll typically get a form summarizing your deductible contribution for the year), others, like charitable contributions, will require you to comb through your records and add up everything you spent. The same holds true for medical expenses and business expenses -- figuring out these deductions can be a time-consuming process, so it's one you shouldn't wait to kick off.
Finally, keep in mind that you're not the only person out there who filed a tax extension, and so if you come to need the help of a tax preparer, asking at the last minute puts you at risk of not getting it. And then, once again, you run the risk of making a mistake and getting audited, penalized, or underpaid on your refund.
Prepare for that tax bill
Another thing to note about tax extensions is that they only buy you extra time to submit your return. They don't, however, get you off the hook when it comes to paying your outstanding tax bill. This means that if you owe the IRS money on your 2017 return, you'll be liable for interest dating all the way back to April, when that return was originally due. Therefore, it pays to figure out what your tax bill is sooner rather than later, so that you're able to come up with a plan for covering it. Remember, the IRS will work with you if you can't pay the taxes you owe in full, but you'll need to request an installment agreement to avoid getting penalized further.
The one thing you should never do to your taxes is neglect them. If your 2017 return hasn't yet been submitted, consider this your wake-up call. Also remember that since the majority of tax filers get a refund each year, there's a good chance that tackling your return will result in a wad of cash coming your way -- but you won't know until you sit down to get the job done.