If there’s anything Americans are known for, it’s for their love of baseball and taxes. Believe it or not, Americans love paying taxes so much that over 125 million of them paid extra and had to get a refund last year!
All jokes aside, filing taxes on time is very important, but not all of us are ready for the fast-approaching deadlines. Luckily, there are ways to give yourself some room to breathe.
Let’s talk about how to file a tax extension to avoid any issues in 2022!
When Is It the Right Time to File an Extension?
Briefly, what is a tax extension?
Well, it’s a way to give yourself more time to pay your tax bill or file your refund if you need more time to prepare. It’s very common and you’re not the only one who needs it!
Ideally, you won’t have to file an extension, but sometimes our tax bills are higher than we anticipate. Whether you’re an employee, independent contractor, investor, or business owner, one mistake on a tax form or a new tax law could lead to a significantly higher tax bill.
Consequently, we’re not always prepared for the bill by mid-April, which is why extensions exist in the first place. We recommend calculating your tax bill as far in advance as possible to get a rough idea of what you own.
This way, you can prepare for the worst and hope for the best. If that means filing an extension, it’s best to do it sooner rather than later.
If you believe you need to file for one, then you can file a six-month extension with the IRS, bringing the deadline to October. During that period, you can pay down your tax bill however you like until the balance is brought down to zero.
Is There a Deadline to File?
Yes, there is a deadline to file an extension, and you don’t want to wait until then. If you want to know when to file tax extensions, the deadline is the same as the normal tax season which is Tuesday, April 19 in 2022.
However, if you wait too long, the IRS may not receive your extension application in time. We suggest doing this as soon as possible if you know you will need an extension.
Are There Fees for Filing Extensions?
Assuming you file the extension at the right time, then no, there aren’t any fees. This is a common concern for first-time extension filers, but you can rest assured that there are no penalties for filing an extension.
However, if you fail to pay after the extension or don’t meet the extended deadline, fees will accumulate unless you reach an agreement with the IRS. This is rather uncommon, but in extreme circumstances, such as filing for bankruptcy, it is necessary to find alternate arrangements.
Also, if you don’t file the extension in time, there will be a fee for missing the April deadline, and the fees will continue to accumulate from there. You can expect a fee of up to 5% of the total tax due, and additional penalties of no less than $100 after 60 days.
Because of this, it’s critical that you file the extension on time.
Is Filing an Extension Bad?
Because there are no fees or penalties for filing an extension, it isn’t an inherently “bad” thing to do.
However, you probably want to avoid it, especially if you know you will owe taxes again next year. Giving yourself enough time to prepare in advance is always a good idea.
For self-employed people, filing an extension is the last thing you want to do, as it could lead to a vicious cycle of filing extensions every year until you wind up missing the October deadline. If that happens, you could find serious financial trouble.
Although, a one-time extension is not likely to cause too much damage, assuming you give yourself ample time to prepare for next year.
How to File a Tax Extension
To file an extension, all you have to do is submit the proper form to the Internal Revenue Service (IRS). You can e-file, mail, or fax this completed form to them prior to the tax deadline.
Again, you want to give yourself ample time to file this extension to ensure the IRS receives it in time, which will save you some fees, especially if you are mailing the form to them.
Remember, you’re still filing your taxes the same way you would before the tax deadline. You just won’t have to pay it until the extended deadline.
For individuals, whether employed or self-employed, you will file a Form 4868 along with any specified information. This may include Covid-19 relief information, personal documentation, last year’s tax information, financial statements, work information, and more.
Prior to filing this, make sure you have the necessary paperwork on hand, especially W2s or 1099 forms.
Regardless of your employment status or type of income, most people applying for an automatic tax extension will be using the individual 4868 form. The only exception is when filing as an enterprise.
For small businesses, corporations, and other organizations, you will need to file a Form 7004 with the IRS by the tax deadline. They will request additional information such as financial statements and an estimate of your tax liability.
Either way, once you’ve filed your Application for Automatic Extension of Time (4868 or 7004), you will receive a Proof of Extension Filed form from the IRS.
Frequently Asked Questions
We know that tax talk is confusing for many people. Tax law isn’t something we all love to learn about in our spare time, but it is very important, especially for those who are self-employed.
If you still have any questions about filing an extension, we hope we can answer them for you here.
What Happens If I Miss the October Deadline?
If you have a tax refund coming, then there is no penalty for filing late. However, if you owe taxes, you will be hit with some extra late filing fees.
Do I Need a Tax Attorney to File?
You will not need an attorney for simply filing an extension. However, there are many circumstances where you may need a tax attorney or CPA.
Also, consulting with tax lawyer can offer expert advice about filing tax extensions, which may help with intricacies within your circumstances.
Can Anyone Get an Extension?
Yes, anybody can file for an extension. Any taxpayer, whether they owe or are owed tax money, can file for an automatic extension without any fear of penalties.
What If I’m in the Military?
Military personnel who are actively serving will have some gray areas for taxes that need to be cleared up, but we recommend talking to a tax specialist if this affects you.
For those serving on active duty, an automatic extension is given to those who served in a combat zone or were stationed abroad during tax filing season. You will not have to file for the extension yourself.
Now, if you qualify for that extension, it usually means you have 180 days past the April deadline to file and pay any federal taxes owed, with some exceptions for extenuating circumstances.
Also, if you are hospitalized for injuries related to your service in a combat zone (or elsewhere), you will be granted 180 days from the time you are released from hospitalization to file.
Can I Pay My Tax Bill With Installments?
Yes, but only upon agreement with the IRS. This isn’t a very common setup, but after filing for an extension, you can request a payment plan or installment agreement with the IRS.
Alternatively, you can get an extension by paying all or part of your estimated income tax due and indicating that the payment is for an extension using Direct Pay. By paying part of it, you will reduce your balance upon filing and automatically receive an extension.
Depending on the circumstances, this may involve interest payments or certain other fees. However, this is taken on a case-by-case basis. If you have a tax lawyer assisting you, you will be more likely to reach a favorable agreement.
Do Some People Have Automatic Extensions?
Yes! Certain niche forms are granted automatic extensions due to specific tax laws. Some of these forms include:
- Form 1040 (1040-SR, 1040-NR, etc.)
- Form 1041 (1041-N, 1041-QFT, etc.)
- Form 1120 (1120-C, etc.
- Form 8960
- Form 8991
- Form 990-T
However, if you’re unfamiliar with any of these forms, it is unlikely they apply to you. These are specialized tax forms for specific uses, and some of them only have automatic extensions up to May or July.
File Now & Worry Later
Now that you know how to file a tax extension, there’s no time to wait. The sooner you file, the more time you will have to plan. If you’re really in need of help, talk to the IRS and come up with a payment plan that works for your needs.