As Tax Day approaches, many people will be filing for an extension. Are you going to be one of them? The IRS has made it very easy to apply for an extension to file your tax return, which gives you until October 15 to file your return. However, this does not mean that you can just fill out the form and wait until October to handle your taxes. There are some key things to do to ensure you do not end up with penalties and additional fees added to your tax bill.
Pay an Estimated Tax
The extension to file does not mean you have an extension to pay your taxes. Unless you apply for a separate extension to pay, which is much harder to get approved, your taxes are due on April 15 (April 17 for 2018 due to holidays). This means you need to review your income and prepare enough of your tax return to have a good idea of your tax liability. You want to get as close as possible, since you need to pay at least 90 percent of your total tax to avoid penalties and interest fees on the unpaid taxes.
File for an Extension Early
The failure to file a tax return penalty is quite steep at 5 percent of your tax bill per month, capped at 25 percent. This can go higher if you also do not pay your estimated taxes on time. If you file for an extension and file your return on time, then you will avoid these penalties. The process for applying for an extension is simple: just fill out form 4868 online, or you can print it out and submit it through the mail. You do not have to give a reason, and the IRS pretty much approves all extension requests. Just make sure that you file the extension request by the April deadline, or else you will not be able to request an extension and will end up with penalty fees. It is even better to do it early so that you no longer have to worry about it!
File and Pay As Soon as You Can
Although it is nice to have the extra time to gather your necessary documents for filing your tax return, you do not want to put it off so long that you risk missing the October deadline to file. Give yourself time to collect your forms and fill out the return, with some time to spare in case you end up with a missing form for which you have to search. The last thing you want to do is realize you do not have a 1099, Schedule K-1, or W2 that you need to complete your taxes on the day that your tax return is due.
Once you have filed your request for an extension and paid your estimated taxes, you have time to breath. However, make sure that you set yourself a reminder to take care of filling the return and paying any additional taxes owed beyond what you estimated and paid. As long as you have this in by the October deadline, then you will not have to worry about any penalties, unless you greatly miscalculated your estimated tax payments.
Many people mistakenly believe that requesting an extension to file their return also means they do not have to pay their taxes. However, this is an easy way to end up with a massive tax bill, thanks to the penalties and interest that start to accrue on day one. You will have six months of penalties and interest adding up, which could make it very difficult to pay your taxes. Instead, make sure that you pay a well-calculated estimate of your taxes before the April deadline, and make sure that you file your request for an extension and your final taxes well before the deadlines.
If you already owe the IRS money and struggle to pay the bill, then contact Fidelity Tax Relief. We will review your case and discuss potential solutions, such as Installment Agreement, Offer in Compromise, or a Penalty Abatements. Call us at 877-372-2520 to talk to one of our tax professionals.