The tax deadline is less than a week away! If you’re busy scrambling to put together your return and don’t think you’ll have it done in time, you can always file a six-month extension. Here’s what to keep in mind.
A tax extension is due the same day as Tax Day. This year, Tax Day falls on Tuesday, April 17th.
You can file your extension for free using certain software listed on the IRS’ website. Or, you can use the paper 4868 form. If you’re a part of the military or have been living outside the country, different rules may apply.
Another option is that you can pay part or all of your estimated income tax by using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit/ debit card. You will have to indicate that by sending this payment you are requesting a tax extension.
The vital point to remember about filing an extension is that you’re only getting more time to file your return… if you owe money, you still have to pay by the 17th! Otherwise, you’ll also pay a penalty and interest. So, when you officially file for the extension, you need to include payment (the best estimation of what you think you’ll owe).
If you’re even a little bit further behind and haven’t filed an overdue tax return, it may be time to do it now. Here’s why (besides the fact you should want to limit how much interest and late payment penalties you’ll pay):
Missing out on your refund
If you’re expecting a refund for your overdue tax return, there’s a chance you won’t receive it. Your return must be filed within three years of the deadline in order to receive your refund. In fact, about one million taxpayers who are owed refunds from 2014 still haven’t filed that year’s return. The deadline to file that return is this April 17th.
Similar rules apply to claiming credits like the Earned Income Credit.
The IRS holds your refunds in order to motivate you to file on time in the future.
Hurting your Social Security benefit
If you’re self-employed, any tax return that is not filed will not be reported to the Social Security Administration, meaning you won’t receive those income credits toward your benefit.
If you’re in the market for a loan, the process can be delayed. Mortgage lenders and financial institutions will request a copy of your tax return when you apply for a mortgage, loan, business loan, or financial aid to pay for college. If you don’t have a copy or it hasn’t been completed, this can delay the process or prevent you from getting your loan.
Did you know if you fail to file, the IRS may file for you? The problem with that is that you may not get the deductions or credits you’re entitled to. The IRS will send you a Notice of Deficiency CP3219N (90-day letter). This means you have 90 days to file your return, and, if not, they’ll proceed with their own assessment.
The IRS assessment of your taxes will end up creating a tax bill. If this goes unpaid you could face additional penalties, such as a levy on your wages or a tax lien.
If you’re a repeat offender, there is a possibility the IRS will apply additional penalties or criminal prosecution. If you need help filing an overdue return, this page on the IRS website has more information.
The Simply Money Point
If you need a little extra time filing your taxes, make sure to file an extension (but don’t forget to still pay on time!). If you need additional guidance, Simply Money Advisors recommends working with a tax professional.
And to learn some ways to lower your taxes now and in retirement, download our free guide.