With the April 15 tax filing deadline rapidly approaching, now's the time to get moving on your return if you've been procrastinating. But what if you buckle down, gather your paperwork, and realize key documents are missing? Or what if you panic at the thought of filling out your return on your own but can't find a decent tax preparer at this point of the season?
In either of these scenarios, you may be tempted to request a tax extension and buy yourself an extra six months to get your return submitted. But before you do, know that going this route could come back to really bite you.
How tax extensions work
The good thing about tax extensions is that you don't need to justify your request for one to the IRS. All you need to do is fill out Form 4868 and get it over to the IRS before the actual deadline.
That said, the only thing your tax extension will do is give you six extra months to submit your return. It won't get you out of paying your tax bill in April if you owe the IRS money.
And there's the catch: You may not know that you owe money on your taxes if you don't actually do them. But if your paychecks went up substantially last year in the absence of a raise, and you earned a lot of side income (say, from investments or a second job) that you didn't pay estimated taxes on, then there's a decent chance you'll end up owing the IRS some cash this April. And if you don't pay up by the 15th, you'll start accruing interest and penalties on the sum you owe.
Incidentally, that late-payment penalty isn't insignificant. It'll amount to 0.5% of your unpaid taxes for each month or partial month they go unpaid, up to a total of 25%. That's why it pays to make an effort to file your taxes on time. That way, if you have an underpayment, you can come up with a plan to get it paid off as quickly as possible.
Getting your return completed
There are several reasons why you might think you need extra time to do your taxes, but some of them are easily addressed. Let's say you think you need an extension because you're missing a few 1099 forms. You're not actually required to submit 1099s along with your return, so if you're lacking this document from a client you did freelance work for but have an accurate record of how much you were paid last year, that's good enough. Furthermore, if you're missing a 1099 from a bank or brokerage firm you have assets with, getting your hands on that document is usually a simple matter of making a phone call, or logging into your account and seeing if it's available electronically.
Furthermore, if you're missing receipts for business expenses and therefore don't know what deductions to claim, you can always call those vendors and ask them to send copies. That might be quicker than tearing your home apart in search of them.
And if you're seeking more time to submit your return because you slacked on hiring a professional to do the job for you, know that unless your situation is complicated, you can probably manage to file it yourself if you use electronic software. These programs are designed to guide you and help you avoid mistakes; countless filers use them to avoid paying tax preparers a premium.
Even if you're not comfortable submitting your tax return without a professional's input, you should, at the very least, run your numbers through a tax software program to get a sense of whether you owe the IRS money or not. That way, you can file an extension but still get moving on that tax bill before it ends up costing you more money than necessary.
If you absolutely can't get your taxes done by April 15, then it pays to get an extension. Just be sure to explore all other options before going that route, especially if you suspect that you'll end up owing the IRS some cash.