Everyone knows the deadline for filing tax returns is midnight, April 15—unless that date happens to fall on a Saturday, Sunday or legal holiday (as it does this year), which pushes the deadline to the next business day. If you can't get your tax forms completed, signed and in the mail by the deadline, you can receive extra time. Don't feel bad if you need extra time: Each year some 7 million taxpayers request an extension.
And, starting this year, you get more time than ever. In the past, filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, gave you an extra four months. That pushed the deadline to August 15. There was an extra form to file if you needed still more time. It would push the deadline to October 15. The IRS figures that taxpayers spent 9 million hours each year filling out that second form, Form 2688. To save them the time, and save the IRS the trouble of processing all those forms, starting in 2006, the Form 4868 does the work of both forms. If you file it by April 16, your deadline will automatically be pushed back to October 15. TaxCut will prepare the form for you.
There is, alas, a catch. Although the extension gives you more time to file your return, it doesn't put off the deadline for paying the tax you owe. In the past, in fact, the automatic extension was denied automatically if the form wasn't accompanied by a check for the amount you figured you owed. Now you can buy extra time without sending a check for the difference between your tax liability for the year and what you've already paid via withholding or estimated tax payments.
You still have to estimate how much you owe, and that's what complicates the otherwise simple Form 4868. There's a line for your estimated tax liability—a figure that's tough to come up with unless you've already done most of the work necessary to complete your return. If you don't pay the amount due with your Form 4868, you'll owe interest on the unpaid balance from April 16 on. The IRS interest rate is set each quarter in line with what it costs the government to borrow money.
If you're short by 10% or more, you'll probably also be hit with a late payment penalty. It builds up at a monthly rate of 1/2 of 1% of the amount due. If you owe an extra $1,000 with your return, for example, the penalty would be $5 for each month (or part of a month) you fail to pay up after April 15. If you procrastinate too long and ignore IRS notices to pay, the penalty can double to 1% of the balance due each month. In no event can this penalty exceed 25% of the tax due, however.
Although that penalty may seem modest, getting an extension lets you avoid a much stiffer one: the failure to file penalty. If you file neither your return nor a Form 4868 by April 16, this penalty is 5% of the tax due for each month your return is late. A $1,000 balance due on a return four months late, for example, would trigger a $200 penalty.
If your return is more than 60 days late, the failure to file penalty is a minimum of $100 or 100% of the tax due, whichever is less. By accurately estimating and paying your tax with your Form 4868, you avoid interest and both penalties during the extra six months you get to complete your return. If the IRS decides you didn't make a reasonable estimate of your tax liability, it can refuse to grant the automatic extension.
File the request for an extension by April 16 with the IRS service center to which you send your return. Be sure to give yourself credit — in the payments section of the Form 1040 — for the amount of tax paid with the Form 4868.
U.S. citizens who live outside the country, those whose main place of business is beyond our borders, and military personnel who are stationed abroad on April 16 automatically get an extra two months to file their returns and pay their tax. Military personnel in a combat zone generally get even more time. If you qualify, you don't have to file any forms to request the additional time but should include with your return a statement explaining why you qualify for the later deadline.
(Most states also have provisions for extending their income-tax filing deadlines. If you're going to be late, be sure to check with state tax officials for specific requirements.)
It may come as a surprise—and the IRS would just as soon this not become common knowledge—but most taxpayers don't really have to file by April 16. Notice in the discussion above that the penalties for failing to meet that deadline are based on the amount of tax you owe with your return. But most taxpayers don't owe a dime with their returns. Instead, they get refunds. Hmm. If there is no tax due on which to levy a penalty for late filing, then...
That's right: Even without an extension, there is no penalty for missing the deadline if you are due a refund. That piece of knowledge might come in mighty handy if you find yourself scrambling to finish things up in mid April. If you are certain you have a refund coming, you may be able to skip that late-night rush to the post office. But don't procrastinate too long. You do have to file a return, and failing to do so until after the IRS figures you're late—and asks you about it—could mean a penalty. (Another possible problem with missing the deadline is if you're making an election on the return that must be made by the filing deadline.)
Of course, if you have a refund coming you should be making every possible effort to file early — so you can get your money back — rather than putting things off. Generally, the IRS has to pay interest on refunds that aren't paid to taxpayers by June 1. (The rate is the same as the agency charges on underpayments.) That rule doesn't apply if you file your return late. In that case, if the IRS pays the refund within 45 days of the time you file, you get no interest no matter how long the government has had your money.