Running out of time to file your tax? Don’t worry, there is a solution and it’s for free! Give yourself more time by filing for an extension to file your tax returns. This year’s tax deadline is on April 18 and the Internal Revenue Service (IRS) understands the difficulty of meeting this deadline. To address this, the IRS will grant anyone a six-month time extension to file their tax returns for free! 

This blog will discuss the benefits, process, and important reminders you need to know when requesting for a time extension to file your tax return.

Benefits of Filing a Time Extension to File Returns

Here is a list of some of the benefits of filing for a time extension to file your tax returns:

1. Avoid penalties for late filing. The IRS charges a Failure to File Penalty if you don’t file your tax return by the due date. It is generally computed at 5% of your unpaid taxes for each month a tax return is late but not to exceed 25% of your unpaid taxes. If you’ve requested for a time extension, the Failure to File Penalty shall only commence if you fail to file your tax return by the extended due date. However, it’s important to note that the time extension only applies to filing your tax returns. Your tax obligations should still be paid by the original due date or else you risk paying late payment penalties and interest.

2. More time to file accurate returns. Filing for an extension gives you extra time to gather all the necessary information such as 1099 forms, W2 forms, and other relevant information to complete your tax returns. It gives you more time to review the accuracy of your return and more chance to correct mistakes that you may have overlooked because of rushing to meet the deadline. It also gives you (or your tax preparer) more time to evaluate your situation like whether a tax credit is applicable to you or not.

3. It’s free and anyone can avail it! The government will not charge you any amount for filing a time extension and it is available to anyone regardless of the reason for not meeting the tax deadline. Whether it be for any reason, e.g., personal reasons, you were sick or you were on vacation, unforeseen events happened, or if you are still waiting for additional documents, IRS will grant an extension to a taxpayer who requests for it.

4. More time to pursue a tax refund. The statute of limitations for tax refund is three years from the original date of the tax return. Once it expires, the refund statute prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid. But if you file for a time extension, the statute of limitations will also be extended for another six months. You’ll find this handy if for instance you discovered years later that there was a mistake in your filed tax return, and that it resulted to a tax refund. You will be thankful for the additional time to pursue the tax refund due to you.

5. An opportunity to maximize your retirement and deduction. Self-employed individuals and small business owners who have not yet maximized their contributions to their Simplified Employee Pension (SEP) Plan will have additional time to build up and reach their maximum allowed contributions. Normally it should be paid by the tax deadline but if you file for an extension, you will also have an extended time to contribute to your SEP Plan. In addition, your contributions to retirement plan are qualified deductions that can lower your tax liability.

Before we get too excited and request for a time extension to file, here are important things you’ll need to be aware of before you decide to request one:

1. The time extension does not grant you any extension of time to pay your taxes. If you owe taxes and do not pay by the original due date, you may be subject to late payment penalties and interest. If you don’t pay on time, you’ll owe interest on the unpaid taxes and the IRS will charge a Failure to Pay Penalty which is generally computed at 0.5% unpaid taxes for each month or part of a month the tax remains unpaid (not to exceed 25% of your unpaid taxes). In addition, interest will also be charged on penalties. Interest increases the amount you owe until you pay your balance in full. If you can’t pay the full amount of tax on the due date, consider applying for a Payment Plan.

2. Estimated taxes owed must be paid by the regular deadline to avoid penalties.  It is important to estimate your tax liability as accurately as possible and make payment by the original due date to avoid late payment penalties. Failing to pay enough in estimated taxes could result in penalties, even if you file for an extension.

3. Filing for an extension request should not be later than the original due date of your return. Once the original tax deadline has passed, you are no longer eligible to request for an extension for the tax year.

How to Request for a Time Extension to File

You can file for an automatic six-month extension in three ways.

1. Pay Electronically. You can pay all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System, or using a credit or debit card. You don’t need to file Form 4868 with this option and IRS will automatically process the time extension to file your returns.

2. E-file Using Your Tax Software or Through a Tax Professional. You can file Form 4868 (Application for Automatic Extension of Time To File U.S. Individual Income Tax Return) electronically by accessing IRS e-file using your tax software or by using the services of a tax professional who uses e-file.

3. File a Paper Form 4868. You can file a paper Form 4868 and enclose payment of your estimated tax due. Note that tax payment is only optional, but interest and penalties will apply on any unpaid taxes after the original due date.

In summary, requesting for a time extension to file a return can provide you with more time to review and file accurate return, save on taxpayer monies by avoiding late filing penalties and interest. However, the time extension does not grant you an extension to pay your tax liabilities. 

It is best to consult a tax professional to provide expert guidance and ensure compliance with tax laws.

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