We are enjoying the nice weather and here comes two feet of snow. It took some of us a few days to shovel ourselves out, which made us feeling like we should be singing Christmas carols. Within a few days, the snow is just about gone and spring is once again in the air.
Back in the office, phones start to ring with the question, “How do I file for an extension?” What – an extension? I was just singing Christmas carols the other day; how could this be? Yes it is true, we only have a few weeks left and the income tax deadline will be here before we know it. But why are people calling now for an extension? We have a few weeks left, there is plenty of time to get your papers together and get the return done. The good news is we have until April 17 this year to get our federal and state tax returns in.
With that said, it has been a rough year economically for many people. They were forced to make decisions during the past year, cutting back on their tax withholding to make paychecks go further, cashing in stocks and pulling money from IRAs to pay unexpected bills. The consequence of this decision could be not enough tax paid to cover the bottom line. Many individuals seem to believe filing for an extension is the answer to not paying that balance due. This, unfortunately, is neither true nor is it the best way to solve the problem.
An extension is for the purpose of requesting additional time to gather information you can’t get in time to correctly complete your taxes. Not to have additional time to pay the taxes.
Why would an individual file an extension? You will still pay interest on any tax not paid by the regular due date of your return, and the interest continues to accumulate until the tax is paid. In addition to the interest you are paying, there is a late payment penalty assessed for not paying the tax due by the required date of 0.5 percent of the tax due per month until paid. During these economic hard times, aren’t we trying to be more frugal with our money?! The best solution seems to be to get the taxes done and filed by the due date. Send the government, whether it is the federal or state, whatever monies you can afford to send them. If you do not have the money… STILL SEND IN THAT RETURN!! The late penalty for not filing on time is five percent of the amount due in addition to the late payment penalty, as well as interest! Wow! Sounds like way too much hard-earned money being given to the government.
What happens when you do not have the full amount of money due and only send in a partial payment or no payment at all? Once the tax return is processed, you will eventually receive a letter from the government requesting the balance due. Now is the time to call and set up a payment plan. If you are not in a position at this point to make payments, arrangements can be made. In deciding whether to file an extension or not file at all, consider the fact that interest and penalties are generated each month on the balance due. A payment plan brings down the balance due each month, thereby lowering interest and penalties. Now that makes sense!
If you are in a situation where you just can’t get your taxes done by April 17, here are a few things you need to know about filing an extension:
The form used is Form 4868: Application for Automatic Extension of time to file U.S. Individual Income Tax Return. The form needs to be postmarked by April 17 if mailed, or it can be filed electronically. This extension gives up to Oct. 15 to file your taxes. If you are in the military on duty outside of the United States and Puerto Rico on the due date of your tax return, you are allowed an automatic two-month extension to June 15 to file your taxes. If this is not enough time, you can request an additional four-month extension by filing Form 4868 by June 15.
The form itself is rather simple and requires basic information:
Social security number
Estimate of tax liability for 2011
Your total payments
And finally, the amount you are paying
If you are expecting or know for a fact that you are not going to owe money, and for some reason you cannot get your taxes done in time, you do not need to file an extension. You have three years from the due date of the return to collect your refund. Speaking of collecting refunds, April 15 is the deadline to collect any refunds that were due to you for tax year 2008 from the federal government and 2007 for any state refunds. There are 2.4 billion dollars of unclaimed refunds at the federal government for tax year 2008 for individuals who have not claimed them. Once this date passes (April 15, 2012), any refunds for that year will be gone. CRAZY! So check your records quickly, and make sure you are not one of these individuals due some money!
If you have any questions regarding an extension, please contact a tax professional. FBN
Written by Wendy Thompson
Northern Arizona Financial