Tax Day 2018 is almost here. If you don’t think you’ll be able to get your ducks in a row and file taxes by April 17, here’s what you need to know about how to file an extension
You’re probably wondering about this basic question: How can I file for an extension? Believe it or not, the process of filing an extension on your taxes is probably a lot more painless than you think.
If you’re doing your taxes yourself and plan to file taxes online, you can fill out Form 4868 to file a tax extension directly through IRS.gov or via your choice of tax-prep software, like TaxAct's online tools or TurboTax Easy Extension. The agency has information here about what you need to do to file for a tax extension.
Although this is generally referred to as a six-month extension, note that although Tax Day this year is April 17, 2018, rather than April 15, your 2017 tax return will be due on October 15, 2018.
Don't forget about state taxes, advised Lisa Greene-Lewis, tax expert for TurboTax. Check your state tax department's website: While some states will automatically apply your federal extension, others require you to submit a separate state extension form. (Of course, Greene-Lewis pointed out that if you're using a tax-prep service like TurboTax, the program will do this for you.)
Tax pros say there are many legitimate reasons why you might want to file an extension. Mark Jaeger, director of tax development at TaxAct, said that some taxpayers are shareholders or partners in a business and are still waiting to receive their Schedule K-1 form. They’ll need to wait because they don’t have the information necessary to compute their tax obligation. Freelancers or other gig-economy workers still waiting on a 1099 could be in the same boat.
Tax experts say you should not avoid filing your taxes is because you don't have the money to pay. “They should still file their return to avoid a penalty for failing to file. This penalty is larger than for not paying any balance due,” advised Gil Charney, director at The Tax Institute at H&R Block. The failure-to-file penalty can be as much as 25% of taxes due. So even if you owe more than you can pay right now, file your return and contact the IRS to set up a payment plan.
“As long as you pay 100% of your 2016 tax liability — 110% for higher income taxpayers — you will not owe a penalty on your 2017 return,” Jaeger said.
If you are unsure how much you owe in taxes, here’s some math to figure out what to pay now. Go back and look at what you paid in taxes last year, including both withholdings and any payments you made (including estimated quarterly payments as well as payments you made last April). If you’re married filing jointly and your adjusted gross income is less than $150,000, just make sure that this year’s withholdings plus payments equal the same as last year. If your income is above that, multiply what you paid last year by 1.1 (to get to 110%). Then, subtract this year’s withholdings and estimated payments you made over the course of the year, and send the difference to the IRS this year.
One more thing: You can cut your tax bill by as much as $2,750 (for married couples filing jointly) by making a last-minute contribution to an IRA, which lowers your taxable income. If you plan to do this, the deadline to do so is still April 17; an extension doesn’t buy you any extra time to make this tax-saving move.
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