Federal tax returns are always due either on April 15 or the first business day after. While this is a hard deadline for most Americans, the IRS does grant automatic six-month extensions (to October 15) if you complete and submit Form 4868. However, it is important to note that even if you get an extension to file your paperwork, you must still make your complete income tax payment by the deadline in April.
Here are a few common reasons people request filing extensions:
Unorganized or incomplete documentation
Because it is so easy to get an extension from the federal government, you can take the extra time to make sure all of the information you have is complete and accurate. One example is if you lose your W-2 document, and need your employer to mail you a new one. If this will take you right up to the deadline or past it, you are probably better off getting an extension to make sure your documents are all in order.
IRA conversions
Taking the extra time to file your return could actually help you save your taxes in the long run. One way this could work is if you are planning on converting your traditional IRA to a Roth IRA. Typically you have to pay tax on the whole balance of the account when you convert it. However, the IRS has rules in place that allow you to recharacterize your Roth IRA to a traditional IRA at any time you like before filing your tax return, which means you would not have to pay tax on the balance. If this conversion is expected to take some time, getting a filing extension can eliminate that tax responsibility.
Sudden life changes
Life happens. If you have a sudden death or major illness in your family, or if you or your home are affected by a natural disaster, there’s a chance you won’t be able to complete your tax paperwork in time. You do not need to explain these circumstances to the IRS, as no reason needs to be provided for a filing extension, but it is a common reason people seek these extensions.
Out of town
If you are going to be out of town during tax season, you might choose to file an extension if this vacation or out-of-town job will prevent you from getting your tax paperwork in on time. Some snowbirds, for example, like to get tax extensions so they can wait to complete their returns until they head back north for the spring and summer.
Remember: filing extensions do not also extend your due date for tax payments. You will be subject to late payment penalties if you do not get your payment in by the April deadline.
For more information about how and why to get tax filing extensions, contact MCG Solutions.