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| The Basics | Is it time to file for an extension?
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The dog ate your W-2? Still waiting for 1099s? An extension is yours until Oct. 16 for the asking, by mail, phone or computer. Just make sure you've paid what you owe.
By Jeff Schnepper
It's April, and you're sweating. Because you know your tax return is due really soon -- April 17 to be precise. It may even BE April 17.
And you don't know where your W-2 forms are. Or your accountant wont answer your calls. Not that it would do you much good, anyway. Youre still waiting for a K-1 form from that partnership you were persuaded to invest in. And yesterday you got an amended 1099 from your bank correcting the amount of interest that was reported in February.
Regardless, the return is coming due, and there are penalties for filing late. So, relax. Schnepper has a short-term fix: File for an extension. It's a snap.
Form 4868 now allows for a six-month reprieve
The IRS has a simple form that, for the first time, allows you an automatic six-month extension to file your taxes. Its Form 4868, and its easy to complete -- even without an accountant. (Here is a link to the form.) All the form asks is your name, address and Social Security number. It asks you to estimate your tax liability and send any balance due. If you make this payment and cover at least 90% of your real liability, you win. You dont pay a late filing or late payment penalty.
You can also pick the form up at any IRS office or order it toll-free at 800-TAX-FORM (800-829-3676). You may find it easiest to file for an extension over the phone. Youll need last years return and this phone number: 1-888-796-1074.
If you're using tax-preparation software at home, you can file by computer and receive an acknowledgement by e-mail.
You must file it by the regular due date of your return -- April 17 this year. It is an automatic extension. You dont have to give the IRS any reason. You can get it even if the only reason you havent filed is you were lazy or didnt want to think about it.
Form 4868 gives you until Oct. 16 in 2006 -- to complete and send in your return. And, regardless of the form, if you think you owe money to the government, you must send it in by Monday.
The pain of not filing
It can hurt if you don't file for the extension. The Internal Revenue Service can hit you with a late filing penalty of 5% of the tax not paid by the due date for each month or part of a month your return is late. Generally, the maximum penalty is 25%. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller.
On top of the penalty for filing late, there is a penalty for paying late. This is usually 0.5% of any tax not paid by the due date. It is charged for part of a month that the tax is unpaid. The maximum penalty is 25%.
The late-payment penalty can be excused if you have and can show reasonable cause for not paying on time. You are considered to have reasonable cause if at least 90% of your actual liability is paid before the regular due date of your return through withholding or estimated tax payments.
However, youll owe interest on any tax not paid by the due date of your return. This interest runs until you pay the tax. Even if you have a good reason for not paying on time, youll still owe the interest.
Don't ask for a second extension
This year, the IRS has tossed you a slight curve: You can no longer ask for a second two-month extension as you have been able to do in the past. On the other hand, the IRS has already given the two months to you gratis. (It used to be that you had to explain why you needed an additional extension.)
Remember, however, that the extension to Oct. 16 only extends the date for filing, NOT for paying. If you dont pay the amount due by the due date, youll owe interest and, potentially, a penalty for late payment. So even if your return isnt complete, estimate the taxes due and send in any balance with Form 4868. Dont think that the automatic extension for filing also extends the date for paying. It doesnt work that way and many people get caught.
So how are you going to estimate how much you owe? The best way would be to use MSN Moneys Tax Estimator, which will give you a solid ballpark figure of what you owe. Theres a link to the estimator at the top of this article.
In the past, if you didnt estimate and send a sufficient payment with the request for an extension, you could be denied even the automatic four-month extension for filing. Thats no longer the rule. If you file the Form 4868, even if you dont send in the payment of the tax you estimate as due, you still qualify for the extension and avoid those failure-to-file penalties.
After three years, your tax return stands
You should also be aware that the statute of limitations runs from the date you actually file, not the original due date. The statute of limitations is a law that limits the amount of time the IRS has to audit your return. Normally, that is three years from the due date of the return. So, for your 2005 return, the deadline is April 15, 2009. (Likewise, your deadline for amending your 2002 return is April 17.)
If the IRS doesnt audit you within that three-year period, the government is legally prohibited from challenging your deductions. If the IRS can prove you committed fraud, all bets are off. Here, the burden of proof is on the IRS. They must prove that you intended to cheat -- a difficult burden. If you file an extension, the statute of limitations doesn't begin until the return is actually filed.
If you're out of the country
If youre a U.S. citizen or resident and were out of the country, you automatically get a two-month extension to file your return. Out of the country" means either:
- You live outside the United States and Puerto Rico and your main place of work is outside the U.S. and Puerto Rico, or;
- Youre in the military or naval service outside the U.S.
For more information, see Publication 54. You may be able to get an extension beyond Oct. 16. Check Publication 54 for details.
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