April 18 may feel far away, but Tax Day 2022 will come sooner than we may think.
If you don’t think you can finish your 1040 tax return by the due date, there’s no reason to panic. You can simply file a tax extension, which will give you an extra six months to file your tax return.
Get the Full Scoop: Guide to Filing Your Taxes in 2022
What is a Tax Extension?
As the name implies, a tax extension is an extension of the deadline by which you must file your tax return. It’s important to note that when filing a tax extension, you only receive an extension for the date when you must finish and file your paperwork. You don’t receive an extension of the deadline for paying your tax bill.
When is the Tax Extension Deadline?
The deadline for completing and submitting your tax return when you file an extension is six months past the original tax filing deadline. Since the regular tax filing deadline in 2022 falls on April 18, the tax filing extension deadline this year is October 17, 2022, since October 15 falls on a Saturday.
Is There a Penalty for Filing for a Tax Extension?
The good news is that there is no penalty for filing for a tax extension. Also, you don’t have to offer any valid excuses for filing for an extension — no one will ask you any questions. However, if you owe income tax and don’t pay the full amount by the regular deadline (April 18 this year), you will likely be subject to interest on the unpaid amount and a tax penalty.
How to File a Tax Extension by Mail
To file for a tax extension, you can print out IRS Form 4868, fill it out and sign it and then mail it to the IRS. The form includes detailed instructions regarding where to mail the form to, which depends on where you live and whether you are sending a tax payment along with the form.
How to File a Tax Extension Online
If you prefer, you can file a tax extension online instead of by mail using IRS e-file, the IRS’s electronic filing program, and tax software. You will receive an electronic acknowledgement once you complete the transaction, which you should keep with your financial records. Do not mail Form 4868 to the IRS if you file your extension electronically.
Several companies offer free e-filing of Form 4868 through the Free File program. Visit www.irs.gov/FreeFile to learn more.
How to File a State Tax Extension
If you want an extension to file your state income tax return, you will have to apply for this separately from your federal tax extension. Different states handle tax extensions differently.
Some states offer automatic six-month extensions to all taxpayers — these include California, Alabama and Wisconsin, for example. Other states require that you fill out and submit a form similar to IRS Form 4868 to request an extension. Of course, no extension is required in the states that do not assess state income tax.
Special Tax Extension Rules
The IRS offers automatic two-month tax extensions without having to request one in the following circumstances:
You live outside the U.S and Puerto Rico and your main place of business or post of duty is outside these countries.
You are on active military or naval duty outside the U.S. or Puerto Rico.
These extensions apply to the payment of tax as well as the filing of tax returns.
And the IRS offers automatic 180-day tax extensions without having to request one in the following circumstances:
You are serving in a combat zone in the armed forces or have qualifying service outside of a combat zone.
You are serving on deployment in a contingency operation away from your permanent duty station outside the U.S.
What to Do If Your Tax Extension is Rejected
Tax extensions are accepted the vast majority of the time. In the rare instances when they are rejected, this is usually due to errors like misspellings or minor discrepancies, like information that doesn’t match up with what the IRS has on file.
When this happens, you will usually be given a chance to fill the forms out again and correct the mistakes. However, if the IRS believes your tax liability estimates are unrealistic, it could reject your extension and assess you a tax penalty.
6 Tips When Filing for a Tax Extension
Here are 6 simple steps you can follow to file for a tax extension.
Complete IRS Form 4868
Complete IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Note that the name on the form says “Automatic Extension.” You don’t even need to provide a reason – just complete the form.
Remember That This is an Extension to File, Not an Extension to Pay Income Tax
When completing Form 4868, you will be asked to estimate your tax liability and indicate the tax payments you have already made. If there is a balance due, you should pay the balance by the tax deadline. If you don’t pay the remaining tax due, or if you underestimate your tax liability, you could be subject to a Late Payment Penalty (usually 0.5% of any tax not paid by the original deadline, assessed each month or part of a month that the remaining tax liability is not paid). If you overestimate your tax due and overpay, the overpayment can be refunded when you file your tax return or applied to the subsequent tax year. If you expect that you are due a tax refund, then no payment needs to be made when you file your extension.
There is No Increased Audit Risk When Filing a Tax Extension
Some people fear filing an extension, thinking this will put them at additional risk for a tax audit. This is simply not true. The IRS has many programs and flags to identify tax returns for additional scrutiny.
Read More: 12 IRS Audit Triggers
An extension is not one of those flags. Filing your tax return on extension puts you at no greater risk for an audit than if you filed before the April 18 deadline.
Get a Confirmation of Your Tax Extension
It is a good idea to get a confirmation that the IRS received your request for an extension. A simple way to do this is to e-file Form 4868. This can be easily done with many online tax preparation software systems, or through your professional tax preparer. If you choose to file your Form 4868 by paper and snail mail, you should send it certified mail or with delivery confirmation.
Don’t Forget Your State Tax Return
If you need to file a tax return for any of the 43 states (and/or the District of Columbia) that has an income tax, you can also get an extension for your state tax return. Many states require that you complete a separate extension form with them. And, like the IRS extension, it is only an extension to file, not an extension to pay your taxes. Check your state tax authority’s website for their process.
Special Rules Apply to the Military
If you’re in the military, the IRS offers even more flexibility on filing extensions. For example, if you are in the military outside of the United States, the IRS automatically gives you two months longer to file your return without a tax extension. The IRS will not assess penalties or interest on any tax due during those two months. And, there is even more flexibility for those deployed in a combat zone. (For more information, see this article published by the IRS.)
The Bottom Line
Preparing for retirement is part of your overall financial plan. You can take a couple of actions now to get yourself on the right track.
Download 5 Tax Hacks for Investors, an actionable guide with insights from fiduciary financial advisors. The guide is free.
Consider talking to a fiduciary financial advisor for more detailed guidance on your tax-optimization strategies.