Why & How to file a tax extension ?

extension to file tax returnFirst , let us know why one should file tax extension . In fact , I should start with fundamental question “what is tax extension”. The answer is : a tax extension is nothing but the grant of time to file tax return beyond tax day . If you apply , an automatic six months extension of filing date. For example , for Tax Year 2017 , the tax day is 15th April 2018 . If for any reason you think you are not able to file tax return by 15th April , you can file a Form to IRS before 15th April . That filing application will make you eligible to extension of time till 15th October 2018 ( for Tax Year 2017)

Why to file for tax extension ?

Apart from the six extra months you get on filing extension application , here are five other clear benefits of exension of your tax return filing date

  1. No penalty for failure to file tax return . You do not require to pay penal interest which is quite high at 5 % of the tax outstanding as on due date for filing tax return. Get an idea of quantum of  your penal interest by using this failure to file penalty calculator.
  2. More time to claim refund , in case you forgot to claim refund for the tax year for which you got extension of time to file. This is because , there’s a three-year deadline for receiving a refund . The time limit of 3 years is computed from  original filing deadline (for example April 15, 2018, for the year 2017).But if you get filing extension, the limitations to claim refund  is also extended by six months. Thus you be getting more time for refund claim
  3. Extra time for  to fund a retirement plan. This benefit is for Self-employed persons . . Filing an extension provides these taxpayers with an extra six months to fund their retirement planmay want to fund a SEP-IRA, solo 401(k) or SIMPLE-IRA plan for themselves

Additional time to recharacterize an IRA contribution. As long as your IRA is funded by the April deadline, you can change the nature of the IRA by the October extended deadline. Essentially, you can turn your traditional IRA contribution into a Roth IRA, or a Roth IRA contribution into a traditional IRA contribution. This is helpful if you’re not sure if your eligible for one type of IRA.

You can even use this provision to recharacterize a Roth conversion back to a traditional IRA.

Provides additional time to make various elections on your tax return. There are a wide variety of decisions that can be made on the tax return, such as deciding whether to depreciate equipment or take a Section 179 deduction, and whether to carryback or forward any business losses. Those decisions must be made when the tax return is filed. Filing an extension gives you extra time to make those decisions.


3 Ways to Request  for Tax Extension Deadline

  1. You can pay all or part of your estimated income tax due and indicate that the payment is for an extension of filing date . For payment , you can  use Direct Pay,the Electronic Federal Tax Payment System, or using a credit or debit card.
  2. You can file application for extension of due date for filing tax return by submitting Form 4868 electronically . This you can do  irs e file extension either  through your home computer or by seeking help of tax professional who uses e-file.
  3. Lastly , you can file a paper Form 4868 and enclose payment of your estimate of tax due.

So if you properly estimate your tax liability using the information available to you,  entering your total tax liability on line 4 of Form 4868, and file the same either electronically or in paper mode , you are guaranteed six month tax extension .

I live out side USA . Is there any special rule for me ?

The answer is Yes. You get an automatic 2-month extension to file tax return and even pay federal income tax if

  • you are a U.S. citizen or
  • resident alien,

and on the regular due date of your return:

  • You are living outside the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or
  • You are in military or naval service on duty outside the United States and Puerto Rico.

Please read irs detailed guide for people  Living outside the United States

Can I file a second extension on my taxes ?

Answer  is a definite No  because the practice of second extension was stopped after tax year 2005 . Upto tax year 2005, a taxpayer could file IRS Tax Form 4868 for a  a four-month automatic tax extension and by completing Tax Form 2688 he could have another 2 months extnesion . However , you now get six months initiatl tax extension by filing form 4868 so , no second extension can be obtained.

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