If you are nowhere near ready to file your taxes as the deadline approaches, you may file an extension with the IRS that gives you up to six more months to file your taxes. Filing an extension will spare you from late filing penalties — 5% of the amount of tax you owe for each month or partial month past the April 15th deadline. The extension is automatic— you do not have to send any justification or reasoning like "I have 5,000 wadded-up receipts crammed in a shoebox."
» RELATED: 7 tips for procrastinating taxpayers before the deadline
To file an extension, fill out IRS Form 4868, "Application for Automatic Extension of Time to File U.S. Individual Tax Return" and submit it before the April 15th filing deadline. The form and instructions are available at your local IRS office, online at http://www.irs.gov/pub/irs-pdf/f4868.pdf, or through any e-filing service.
The form is quite simple, requiring your Social Security Number for identification (and your spouse’s if you are married and filing jointly) along with your best estimate of your tax liability and the amount you are paying. Note the important distinction: an extension to file does not mean an extension to pay. You are still expected to pay the amount of taxes that you owe even though the exact amount is unknown. You still have to pay interest on any underpayment, and potential penalties apply if you pay less than 90% of your tax bill.
» RELATED: Tax Day: Where does your money go?
You can file Form 4868 electronically or as a paper form. E-filings must be submitted by midnight local time on April 15th; paper forms must be postmarked by April 15th. The instructions for Form 4868 will tell you where to mail your paper copies, as well as outlining your payment options if you expect to owe. You will receive a confirmation when your e-filed extension is approved, but with a paper filing, you are only notified if the extension is rejected.
How can an automatic extension be rejected? That generally happens when the basic information does not match up, although your extension may be rejected if you grossly underestimate the amount of tax that you owe. A simple error like transposing numbers on your SSN or a mismatching address that was not updated with the IRS will keep your extension from being accepted. Notification in either case makes e-filing a safer option for extensions.
» RELATED: Georgians have to wait for income tax refunds
Extensions may also be granted under special circumstances such as military service in a combat zone (See IRS Publication 3, “Armed Forces’ Tax Guide”), or if you are a U.S. citizen living abroad and meet certain criteria (see IRS Publication 54, “Tax Guide for U.S. Citizens and Resident Aliens Abroad”).
Unless you live in one of the seven states that have no state income tax, you will also need to file a state tax extension. The procedure for filing state tax extensions varies by state, so contact your state tax agency to verify the rules. Some states grant a six-month extension automatically, others require that you file a request.
Just as with your federal return, you still have to pay your best estimate of the state taxes that you owe. If you can do so, it is best to err on the overpayment side. You will avoid any underpayment penalties and can receive a refund when you do file your state taxes.
Filing an extension can bring you peace of mind and keep you from making potentially costly tax mistakes. However, if possible you should plan to file your taxes on time next year and avoid the guesswork of how much you owe in taxes. Modify your filing and tracking system so that next year it consists of more than a shoebox full of wadded-up receipts.
Originally Posted at: http://www.moneytips.com/how-to-file-for-an-extension
