The tax filing deadline comes around the same time each year, and yet somehow, it still manages to sneak up on us. Between gathering receipts, waiting on tax documents, getting finances in order, or just finding a few spare hours to get your affairs in order, it’s easy to see how the filing deadline can come sooner than you’d like.
Thankfully, if you can’t file your return by the due date, you can get an extension. But just how do you file a tax extension, and more important, how soon will you need to request one?
What is a tax extension?
A tax extension gives you extra time to file your taxes. If you don’t think you’ll be able to file by the April 18, 2023, deadline, the extension will give you an additional six months to prepare your return.
Note, though, that this only applies to federal taxes. To get an extension on your state income taxes, you’ll need to consult with your state tax authority, as every state handles extensions a little differently.
What’s the deadline to file an extension in 2023?
In order to get a tax extension in 2023, you’ll need to request one no later than April 18. If approved, you’ll have until October 16 to prepare your tax return. Just remember that you have to file something by April 18, whether it’s your actual taxes or the extension request.
How do you file for a tax extension?
To request an extension, complete IRS Form 4868.
You or your tax preparer can submit the form online using the IRS e-file system or any tax filing software. You can also send it to the IRS through the mail. The last page of the form will tell you exactly where to send it based on where you live and whether or not you’re including a tax payment.
Alternatively, you can avoid filing Form 4868 altogether by paying toward your expected tax bill before the filing deadline. To do this, you need to make an electronic payment to the IRS using either Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or your credit or debit card. At the time of payment, you’ll need to select either “Extension” or “Form 4868” as the reason for payment.
How will you know that your extension has been approved?
When it comes to tax extensions, no news is good news. The IRS typically only reaches out if there’s a problem.
That said, if you file the extension electronically, you’ll receive an email within 24 hours letting you know that your request has been received. You won’t get another email stating that it’s been approved, however.
If you decide to mail the form, you likely won’t hear anything at all, not even to confirm receipt. For your own peace of mind, you can pay for delivery tracking or call the IRS to make sure they received your request. Just keep in mind that their phone lines are far busier than normal during tax season, so you may have a hard time getting through.
What happens if the IRS denies your request?
On the off chance that your request is rejected, the IRS will let you know. This typically happens due to easy-to-fix errors on Form 4868. You might have inadvertently spelled your name or street address incorrectly, for example. If that’s the case, you’ll have an opportunity to correct the mistakes and resubmit your request.
Where things get dicey is the form’s estimated tax liability section. The IRS can deny you an extension if they think your estimate is too far off base. If you’re not sure how to come up with this figure, consult with an accountant or tax preparer ahead of time.
When is it a good idea to file a tax extension?
Tax extensions are helpful if you need more time to organize your tax paperwork or to put together your tax strategy. You might still be waiting on documents to arrive, or you might want to take your time researching deductions.
Waiting to file may also reduce your tax preparation fees. If you don’t know how to file taxes yourself, you’re likely paying someone else to do it on your behalf. That can get costly, however, particularly as the tax deadline looms.
By filing the extension and holding off until the slow season, you’ll not only catch your preparer when they have more time to dedicate to you, but it’s possible that you’ll save on filing fees, as well.
Does a tax extension delay your tax bill?
One thing to keep in mind is that, for most people, tax extensions only delay your filing deadline — not your payment deadline.
You’re still on the hook for any taxes you owe, and the IRS still expects you to pony up by April 18 this year. If you can pay at least 90% of your estimated tax, do so. If you can’t, however, an extension can still help you.
IRS fees and penalties are higher when your tax return is considered late. If you owe taxes and neglect to file either your return or an extension, you’ll get hit with late payment and late filing penalties (0.5% and up to 5.0%, respectively). These are assessed monthly, so they can really add up.
If you file the extension, however, you’ll only pay the 0.5% late payment penalty. You won’t get hit with the late filing penalty unless you still haven’t filed by October 16.
How can you avoid needing an extension next year?
Filing an extension can be a saving grace, but it’s better to be prepared.
One way to avoid needing the extension is to shift how you think about taxes. Rather than looking at January-April as tax season, remember that this is filing season. Tax preparation season is all year long. Don’t wait until January to start working with a tax strategist. Throughout the year, keep your receipts and other documentation organized so you’re not scrambling at the last minute.
Additionally, if you’re self-employed or retired, you may have to make estimated quarterly tax payments. You’ll get back any overpayment, and you’ll reduce the likelihood of incurring penalties by filing or paying late.
Knowing when and how to file a tax extension is a key element of tax planning. It’s only one part of the whole, however.
To turn your tax planning into a well-formed tax strategy, you also need to learn how to handle taxes in your specific situation — by researching tax tips for the self-employed, for example. That way, you’ll build up a reliable knowledge base that can help you prepare all year round and keep your finances in order.