With the tax deadline just about a month away, many people are scrambling to come up with all of their receipts and tax documents. If completing your tax return by the April 15 deadline seems like an impossible task, you're not alone. Every year, millions of taxpayers aren't able to file their return "on time."
Fortunately, if this applies to you, there are options. Specifically, you have the ability to apply for an extension from the IRS, which can take the burden of your tax return off of your shoulders -- for now. Here's what you need to know about the process of filing an extension, and the one myth involving tax extensions that could get you into trouble.
Tax extensions: how to apply and how much longer you'll have
To apply for a tax extension, you'll need to fill out IRS form 4868, which can be done in either electronic or paper format. Although you are "applying" for an extension, the process is an automatic one. In other words, if you apply for an extension, you'll get it.
The extension will give you an additional six months to prepare your tax return, so you'll have until Oct. 15 to get yours in. This can be useful if you have an exceptionally complex tax return, or if you're waiting to receive some necessary documentation, like a W-2 from an employer.
But what about the money I owe?
The most popular misconception is that by filing for an extension, you'll have until October to pay any tax you owe. This simply isn't true.
Regardless of whether or not you're granted an extension, any and all tax liability is still due to the IRS on April 15. If not, you'll be charged interest starting from April 15 until the balance is paid in full.
So, if you are not ready to file your return on April 15, you'll still need to estimate how much tax you think you'll owe and pay that amount. If you know your income and have a good idea of what major deductions you'll qualify for, a tax calculator such as this one from TurboTax can help you get a good idea of what to pay.
What if you can't pay?
If you can't pay your balance in full by April 15, there are a couple of options available.
For starters, the IRS accepts credit card payments through several third-party payment processors. There is no shortage of 0% interest introductory credit card deals, which can last for up to 18 months. While you'll have to pay a fee to pay by credit card (about 2%), financing the balance interest-free is certainly better than what the IRS will charge you (3% plus late payment penalties as of this writing).
Another option is to request a payment plan. As long as your tax debt is less than $10,000, this is a pretty automatic process. If you owe more than that, it's still a straightforward process -- you'll probably just have to document your income and assets a little more thoroughly. You can pay your tax over a period of up to 72 months, but remember that interest will be running, so it's a good idea to pay it as soon as possible.
The bottom line
A tax extension can be a good choice for you if you're struggling with completing the paperwork aspect of your tax return before the April 15 deadline. However, it does not extend the deadline to pay your taxes, which will remain April 15. So, as long as you are aware of this fact, an extension can buy you valuable time to get your tax return done right.