The ins and outs of filing a tax extension

What happens when tax season is around the corner and you haven’t put together your financial records?

Don’t panic: you can request more time by filing a tax extension request with the IRS. Additionally, if you are a qualifying expat or military personnel your filing and payment deadline is automatically extended.

Let’s dive into the world of tax extensions and explore what it is, how it works, and how to file tax extensions.

You will also learn about the potential penalties, the reason your request might be denied, and the special provision for expats and individuals serving in the combat zone.

What is a tax extension?

A tax extension is when you ask for more time to figure out the details about what to report in your tax return but this doesn’t mean your tax dues are also delayed.

You are liable to pay your tax bill for the tax year 2023 by the usual tax filing deadline which is April 15, 2024, unless you live in an area that the federal government declared to be a major disaster area in which case you get an automatic extension to file your return and pay taxes until Oct 15, 2024.

This is a tax relief for disaster-affected taxpayers to have them not worry about their taxes until they get back on their feet.

IRS states that:

How do tax extensions work?

Taxpayers often think the extension for submitting a return also means you have more time to pay your tax bill but this is not the case. You are required to pay your tax bill by the deadline.

However, if you cannot pay your tax liability in full you can request a monthly installment plan by filing Form 9465.

When it comes to calculating taxes you either owe money to the tax authority or you are eligible to get a refund.

Let’s take a look at both scenarios in the context of the extension request.

1. What happens when you are liable to paying taxes?

Let’s say you were so busy during the tax year with earning money that you didn’t have time to keep track of it.

Now the tax season approaches and you realize you need more time to look at your bank statements to figure out how much you earned and what deductions you are eligible for to determine your taxable income.

You are certain that you wouldn’t be able to submit your return by the usual tax filing deadline so you request IRS extension 2024 by filing Form 4868 to get six more months.

You are aware that since you could only get an extension for submission but you still have to pay the tax so you wonder “how to compute what you need to pay”.

To determine how much taxes to pay, you need to estimate it by using the figures reported in your previous year’s tax return as a basis to calculate your expected income, deductions, and credits for the current year.

NOTE! Generally, you must pay an estimated tax for 2024 if you owe at least $1,000 tax after deducting your withholding and refundable tax.

2. What happens when you are eligible for a refund?

There are instances where you don’t owe any tax but qualify for a refund. In this case, generally, you can claim the refund if you file your return within 3 years.

This means if you miss the filing deadline it won’t result in a penalty or a late payment fee.

However, it is prudent to file your return within the prescribed time limit to get your refunds because once three years have passed a statute of limitation will be imposed preventing you from getting refunds.

Is there a penalty for filing a tax extension?

No, the IRS won’t impose a penalty for filing a tax extension but you might have to pay:

• Late Payment Penalty: the penalty for late payment is half of 1% of any unpaid tax, excluding estimated tax which can go up to a maximum of 25%.
• Late Filing Penalty: the penalty for late filing is 5% of your unpaid tax liability which can go up to a maximum of 25%.

The penalty can be avoided if you have a reasonable cause for not filing and paying taxes on time.

However, you still have to pay interest on the unpaid balance by the deadline. The interest remains unaffected by the granted extension.

How to file tax extensions?

You need to file the IRS Form 4868 to get the IRS extension at the usual tax filing deadline which is April 15 for 2024.

You get 6 more months to work through your paperwork and enter the numbers in your return to find out how much you owe or how much refunds you can get.

If you request an extension for the year 2024 then you will have to file your tax return until Oct 15, 2024.

The extension form 4868 requires the following information

a) Your Identification Information

You will have to fill in:

• Your name,
• Address,
• Social security number of you and your spouse.

b) Your Individual Income Tax Info

You are required to fill in:

• An estimate of total tax liability.
• Total payments.
• Balance due.
• Amounts you are paying. The IRS will grant you an extension even if you can’t pay the amount, however they will charge you interest and impose a penalty on unpaid taxes.

NOTE! You also need to check boxes to indicate your citizenship status and whether you file Form 1040-NR.

You can request an extension using the following methods:

1. Request tax extension via payment

To opt for this method you are required to calculate your estimated taxes which means if you qualify for a refund this method won’t apply to you since there is no payment to be made.

While paying your estimated tax either fully or partially you can indicate that the payment is meant to request an extension. You can make the payment using either:

• Direct Pay (Electronic Tax Payment System)
• Credit card
• Debit Card

NOTE! You are not required to file the IRS Form 4868 if you make a payment using the IRS electronic payment options.

2. Request tax extension via e-filing

Another method is to file Form 4868 electronically under the IRS electronic filing program. Upon e-filing you will receive an acknowledgment which you must keep with your tax record.

You will get an automatic extension of 6 months to file your tax return.

Can I file an IRS extension myself?

You can access e-filing under the IRS Free file program. According to the IRS:

Let’s have a look at how this tax software works.

The guided tax preparation software under the IRS free file enables qualifying taxpayers to prepare and file their income tax returns online.

NOTE! To be eligible for it your Adjusted gross income (AGI) must be $73,000 or less. However, if your AGI exceeds this limit you can still use free file-fillable forms which are electronic forms similar to paper forms.

NB! The IRS free file only allows you to prepare and file current-year tax returns. It does not permit you to process prior year returns.

Can I use the help of a tax preparer?

So, you can file an IRS extension yourself, but you are aware that the possibility of errors is high unless you run the numbers with a tax professional.

Our tax pros will reasonably substantiate the figures and will make sure you don’t overlook the factors that play a crucial role in minimizing your tax liability such as a deduction you might be eligible for or a credit you might qualify to claim.

3. Request tax extension by mail

You can opt to request the extension by mailing paper Form 4868 to the IRS. To get the form you can either download it from the IRS website or place an order for the tax form.

If you are a fiscal year taxpayer then filing a paper form might be the only option for you.

Fiscal year means that your tax year consists of 12 consecutive months that don’t end on the last day of December. This is opposed to calendar year taxpayers whose tax year ends on the last day of December.

Tax extension approval

E-filers get a confirmation message via email. For a mail application, you will probably need to call the IRS and talk to one of their representatives to make sure your request is being processed and whether or not you got the extension.

If you took one of the electronic payment options and paid your estimated tax in part or full the IRS will automatically process an extension for you.

NOTE! Bear in mind that your request might get rejected because either the IRS spots an error in your form or they disagree with the figures of your estimated tax.

Filing tax extensions for expats and the military

Expats and Military personnel may qualify for auto extension without even applying for it.

1. US citizens or resident aliens residing overseas

This special tax rule grants auto extension of additional two months to qualifying expats who are US citizens or resident aliens.

So If you are living and working outside the US and Puerto Rico you have until mid of June to file and pay your taxes.

NOTE! Only file the IRS Form 4868 if you need time beyond the two additional months.

2. Military personnel serving combat zone

This special provision for the extension applies to the following individuals:

• Members of the US armed forces actively serving in the combat zone,
• Members of the US armed forces or civilians who support the US armed forces within combat zones,
• Members of the US armed forces outside the combat zone but their operation is directly supporting the military operations in the combat zone and they get a special compensation for discharging their duty,
• Spouses of the qualifying personnel.

Those qualifying for this special provision will get an extension of 180 days for filing and paying taxes after the last day:

• Served in a combat zone or a contingency operation,
• In hospital for injuries sustained during the qualifying service.

NOTE! The number of days left before the usual deadline when the individual enters the combat zone is also added to the 180 days.