Filing a federal income tax return with the Internal Revenue Service (IRS) is a requirement for most Americans. The normal deadline for income tax returns is April 15th. But, what happens if Tax Day arrives and you're not ready to file your tax return? The answer is to request an extension of time from the IRS.
At Cook Martin Poulson, our tax experts work with clients every day to help them maximize their tax deductions and communicate with the IRS. In this post, we explain what an IRS extension is and how it works. We also explain what you need to do to request a federal tax filing extension as well as what information the IRS needs (in some cases) to grant you one.
What is an IRS Tax Extension and How Does Tax Extension Work?
As we stated already, the filing deadline for taxpayers to file their individual federal income taxes is April 15th. Your income tax return must be filed online or postmarked by that day to avoid late filing penalties. If you need more time to file, you may request additional time from the IRS by filing Form 4868 by mail or via Free File. There are separate rules for active military service members in combat zones and we will provide information about those exceptions later in this post.
When you file an extension request, you get an additional six months to file your taxes. A filing extension may be granted for an individual income tax return or a business tax return. If the six-month extension expires, you may be able to request additional time, but you will need to prove that you have experienced undue hardship that prevents you from filing within the extension period.
One common misconception is that an extension of the filing deadline is also an extension of the payment deadline. That is not the case. If you owe federal tax, you should pay your taxes, or your best estimate of what you owe, at the time you request the tax filing extension. The same is true if you request an extension of time to file your state income tax return. Paying an estimate is the best way to avoid penalties and interest.
Some of the reasons people request a filing extension include the following:
- Incomplete documentation. If you lose a necessary tax form, such as a W-2 or 1099, or if someone is late sending you a form, you should submit an extension request.
- Lack of organization. If you intend to take tax credits or deductions, you may need additional time to gather receipts and other paperwork needed to prepare your return.
- Unexpected life events. If you experience a death in the family or a natural disaster, you may need additional time to file your taxes.
While these are three common reasons, you don't need a reason to request an extension for your tax return. We should note here that in the past, you could recharacterize a traditional IRA as a Roth IRA and taxpayers sometimes requested an extension to wait for the recharacterization to be complete. However, as of 2018, recharacterizations are no longer permitted.
The final thing you should know about tax extensions is that the six-month extension is automatic. You need to file form 4868 or pay your estimated taxes to let the IRS know that you need the extension. However, the initial extension request is never denied, although additional extensions may be. Taxpayers who have overpaid and are due a refund do not need to file an extension. However, they may want to do so if there's a chance that they may owe.
Is There a Penalty for Tax Extension?
Another common question we hear about filing a tax extension has to do with penalties. Our clients want to know if they will incur any penalties if they request an extension of time to file their return.
The short answer is no, there is no penalty attached to extending your filing deadline by paying your estimated tax or filing Form 4868. As we noted above, the extension applies only to filing your tax return.
Penalties and interest may accrue if you are late paying your taxes. That may not be an issue if your employer has withheld an amount sufficient to cover your liability. If you suspect that you will owe the IRS money, or if you are self-employed, then you should pay your estimated taxes by the filing deadline (and possibly make estimated tax payments during the year, if needed) to avoid penalties and interest.
You should know that if you have an installment agreement with the IRS, you can still get a filing extension if you need one. You may also be able to get a payment extension. With a payment extension, penalties and interest will still accrue, but at a lower rate than they would if, you did not have a formal agreement with the IRS.
When is the Tax Extension Deadline?
The regular tax filing deadline is April 15th every year (delayed in 2020 and 2021). When you file for an extension of time, you will get an additional six months to file. That means the extension deadline for individual tax return filings is October 15th (the extension deadline was still October 15th in 2020 and 2021).
In certain circumstances, you may be able to request an additional extension. Extensions may also apply if you are a US citizen or resident alien living outside of the United States and Puerto Rico on filing day, or you are on active military duty outside of the United States. In that case, you can delay your filing until June 15th and may also qualify for an additional four months if you file Form 4868.
Does Filing a Tax Extension Increase Audit Risk?
Nobody wants their taxes to be audited and it's natural to be concerned that something you do might increase your risks of being audited. It's for that reason that many of our clients ask whether getting a tax extension makes it more likely that they'll be audited by the IRS.
There is no exact science to guessing whose taxes the IRS will decide to audit, but there is also no evidence that getting an extension to file your return will lead to an audit. Audits are typically reserved for people who display red flags on their tax returns because they:
- Have higher than average income
- Own a business or are self-employed
- Take a lot of deductions, including charitable deductions
- Claim a lot of tax credits
- Fail to report all income
Any ordinary person may get audited, but the chances are small if you don't go overboard with deductions and are diligent about reporting all income. As far as tax extensions go, it's possible that filing one, particularly if you're not fully prepared to file or you're going to do it in a rush, could reduce your risk of an audit instead of increasing it by giving you time to ensure your tax return accuracy.
How to File a Tax Extension
One thing that can be confusing to people who need an extension on their income tax returns is the filing process, especially because the IRS says that you can automatically extend your time to file by six months. Here is the step-by-step process:
- On or before April 15th, pay your estimated taxes for the filing year in question. You can calculate your estimated tax by totaling your income and using a free tax calculator. Make sure to note your estimated total deductions to get an accurate number.
- If you pay by check, then you should print a copy of Form 4868 and enclose it with your payment.
- If you pay electronically, your electronic payment via Direct Pay, the Electronic Federal Tax Payment System, and file Form 4868.
- If you are getting a tax refund, then you are not required to file form 4868. However, you may wish to do so if you think your estimate may change.
That covers the basic process of getting an extension to file a return. As previously noted, you can also qualify for an automatic extension if you are an active member of the military. The two-month extension we mentioned above applies to anybody serving in the military or living abroad. However, there are special rules that apply to those in combat.
Military members in combat zone service are not required to file or pay taxes for the duration of their combat service plus 180 days. This is an automatic extension of time to file and pay. If a service member entered combat zone service on April 1, they would receive an extension of 15 days, that is, the length of time between their first date in combat and the due date for tax filing. They would then have the length of their combat plus 180 days to file. If a service member is wounded in action and hospitalized, the extension continues for the duration of their continuous hospitalization plus 180 days. There will be no penalties or fees applied, so the military member has time to pay upon returning to the United States. The maximum extension for combat service is five years.
Military service members have several options to notify the IRS that they are in active combat. They may notify the IRS via email at email@example.com, call the IRS, or respond to a notice of action from the IRS if they receive one. There is no need to file Form 4868 to notify the IRS.
Individuals who are US taxpayers living abroad or in non-combat military service may get the two-month deadline we mentioned above by attaching a statement to their federal income tax return explaining which of the two situations qualifies them for the extension. To get a six-month extension, those individuals will need to file Form 4868. Unlike those in combat zone service, individuals who qualify for the extension as resident aliens or active duty military serving abroad must make estimated tax payments by the regular due date to avoid interest and penalties. You can find additional information on the IRS website.
Will My Tax Refund Be Delayed if I File a Tax Extension?
In a normal tax year where you file your tax returns and all necessary forms by April 15th, you would expect to receive your tax refund within as little as one week with electronic filing and direct deposit. The longest time it should take is eight weeks if you choose to receive a paper check in the mail.
The payment of tax refunds is triggered when the IRS receives individuals' tax return forms for a given tax year. Since most people file their taxes by the regular tax return filing deadline of April 15th, these individuals who file on time can expect to receive their tax returns by June 15th at the latest.
If you take advantage of your automatic extension of time to file, then you will not receive your refund until after you file your taxes. The same is true if you request a state tax extension. Income tax refunds will not be processed early even if it's clear that the IRS owes you a refund. When the IRS receives your federal tax return, they will check it and process the refund after they have reviewed your tax forms.
The bottom line is that if you don't need your refund immediately and you have other reasons to want a tax return extension, you can still request one. The processing of your refund will begin when the IRS receives your tax return forms.
Our Tax Pros Can Help File a Tax Extension
If you are missing information to file your taxes or are unable to file by the due date for other reasons, then filing for a tax extension is the best way to get the time you need to submit an accurate and complete return. You should keep in mind that an extension does not give individuals extra time to pay their taxes. It is essential to make an estimated payment to avoid penalties and fees.
Do you need help getting an income tax extension? Work with a tax professional to ensure that you don't make mistakes on Tax Day or during your extension period. Cook Martin Poulson's income tax services from our tax pros can help you file your federal tax return, calculate your tax payments, and get a filing extension if you need one.