When April 15 is rapidly approaching and you're not quite ready to file your tax return and pay whatever you owe to Uncle Sam, you're not out of luck. You can do what nearly 13 million taxpayers did last year: Ask for a tax extension.
First, though, it's important to understand what a tax extension is and isn't. It isn't permission to pay your taxes later. The extension gives you permission to file your return late -- typically up to six months late, with your new deadline being Oct. 15. But your deadline for paying your taxes remains the same -- April 15 (or the first weekday after that).
For the many people who know they're getting a refund, the tax extension is a perfect solution. But if you think you'll owe money, you should send in what you think you'll owe -- otherwise, you can get charged interest and a penalty. (Even if you guess wrong and send in less than you should have, you'll be reducing your penalty as it's based on the amount owed.)
When you might need a tax extension
There are gobs of reasons you might need a tax extension. Perhaps despite your good intentions, you just haven't had the time to prepare your return -- maybe because of a death in the family, a divorce, an illness, or a change in your work schedule. It could be that you've suddenly sold your house and now have just a few weeks in which to pack it up and move. You might also be expecting that a certain tax law will soon be changed retroactively, or perhaps some of the paperwork you need to finish your return, such as a 1099 form, just hasn't arrived yet.
Things to know about a tax extension
Here are some additional important things to know about tax extensions:
- You can file for an extension using IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return), and you can send it in on paper or file it electronically.
- Just about everyone who asks for one gets it.
- Don't think that it's OK to file for an extension after April 15. Missing that critical deadline can leave you with IRS penalties for failure to file as well as failure to pay, and failing-to-file penalties can be more severe. The IRS outlines some of its charges on its website.
- If you can offer "reasonable cause" for not filing or paying on time, the IRS might not charge a penalty. Its heart is not made of stone.
- If you need an extension for your state tax return, check with your state's tax office or search online to see what you need to do. In some states, it's enough to just file the federal tax extension form, while other states have their own forms.
- If you're using tax-prep software such as TurboTax, it can help you file for an extension, too.
- Military personnel stationed outside the U.S. get extra considerations, and taxpayers simply living and working abroad may be able to get an extra extension to file their taxes, too.
If you just can't pay
If you want to file for a tax extension because you just don't have the money to pay what you owe, the extension isn't really a solution. Remember, it's just an extension for filing your return; your taxes are still due on time. As a result, you'll only end up with more penalties and interest charges by filing an extension buy not paying your taxes.
In such a situation, what you should do instead is file for an extension to pay via IRS Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. It will probably still result in penalties and interest charges, but smaller ones.
You can also set up an installment payment plan with the IRS. The IRS itself suggests an option that's actually kind of dangerous -- charging your payment on a credit card or getting a loan to pay it. Be careful with that, lest you end up spiraling deeper into debt.
A filing extension is easy to get and can be a very sensible move -- as long as you do so responsibly, aiming to pay what you expect to owe by the April 15 deadline.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.