Yet another reason that some individuals do not want to extend is because they are in process of buying a new home or refinancing and their lender is requesting a copy of their tax return. Many lenders will accept a copy of an extension along with copies of documents substantiating income (W-2s, 1099s, K-1s, etc.) and copies of prior year tax returns.

What information is needed to file an extension?

You will need your general taxpayer information, which includes your name, name of your spouse if married and filing a joint extension, your social security number, your spouse’s social security number (if applicable), and your complete address. To avoid potential delays in processing of your extension, special attention is required if any of following apply: your name has changed due to marriage, divorce, etc.; your address has changed since you last filed a tax return; or you want to have correspondence related to your extension sent to your tax professional or otherwise. You should refer to instructions for extension form to properly address any of these items.

There is not much other information needed. The items needed for tax year that extension is for are an estimate of your total tax liability and total tax paid. The estimate of total tax liability is more difficult of two. You need to come up with your best estimate of what tax liability is. The IRS instructions for completion of Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return” clearly state: “Make your estimate as accurate as you can with information you have. If we later find that estimate was not reasonable, extension will be null and void.” If that were to be case, your return would be considered late. A late filed return is subject to late filing and late payment penalties and interest.

How do I file an extension and, if applicable, pay (estimated) tax due?

Either you or your tax professional can prepare and file your extension. The methods for filing it include e-file by phone, e-file by computer, or filing a completed paper Form 4868. Regardless of who is going to prepare and file your extension, information discussed in previous section will be needed. Thus, if you use a tax professional, you need to get in touch with him or her in advance of tax deadline to ensure that he or she has that information.

E-file by phone is a very convenient option if you are going to file your own extension. The Form 4868 and its instructions can be easily downloaded from www.irs.gov. After reviewing instructions for form, use Form 4868 as a worksheet and then call toll free number in instructions. You will be prompted for information from completed form and given a confirmation number at conclusion of call. In order to e-file by phone, you must have filed a federal return for prior tax year.

As for paying (estimated) amount due, you can do so via electronic funds withdrawal (EFT, from a checking or savings account), credit card, or check. The EFT option can be used if you e-file by phone or e-file by computer. You will need to enter additional information when filing extension to include AGI (Adjusted Gross Income) from your prior year tax return and routing and account numbers for your bank account. Payment by credit card can be done via one of several service providers, each of which charge a convenience fee based on amount of tax payment being made. Payment by check can be made if you e-file by phone, e-file by computer, or file a paper extension form. More detail about these payment options is included in instructions for Form 4868.

It should be noted that if you are a taxpayer that makes or should be making estimated tax payments, you should compute and timely make those payments for current year even if you filed an extension. The federal income tax system is a “pay as you go” system and if you are self-employed or otherwise have income that results in a tax liability that is not paid via withholding, you may be required to make estimated tax payments throughout year. If you are not sure if this applies to you, it is recommended that you research this topic or consult with a tax professional.

For further information about filing a second extension, please refer to instructions for Form 2688, “Application for Additional Extension of Time to File U.S. Individual Income Tax Return” which can be easily downloaded from IRS website as www.irs.gov.

What about state, local, and other income tax returns?

Some states will accept federal extension while others require that you file an extension document with them. Ohio accepts federal extension and does not require that you send them a copy of it, though you do need to send in tax due, if applicable, by April 15th deadline. If you live in a state with municipal or other local income taxes, you may need to file an extension with locality (or localities) that you have a filing responsibility with. Further discussion about state and municipal filing requirements are beyond scope of this article as they vary from state to state. Check with respective department(s) of taxation or your tax professional for more detail. Like with federal extension, you generally need to pay any state or local tax due at time extension is filed.

In Conclusion

Whether you prepare your own taxes or work with a tax professional, I hope that you have a better understanding of what an extension is, when it should be considered, and what is involved in completing and filing one. If it is close to April 15th filing deadline and you have not finished or even started preparing your returns, you should consider filing an extension. This will allow additional time to ensure that returns are complete and accurate and, in turn, should reduce stress associated with filing your taxes.

This article may be republished, provided it is republished in its entirety, author is given full acknowledgement, and RightWay Unlimited is given full acknowledgement including linked URL.

RightWay Unlimited

Tiffany is the Owner of Morisue & Associates LLC and a contributing author to the Ohio based free consumer financial information portal- RightWayunlimited.com.

By Tiffany J. Morisue, CPA, 04/03/05 e-mail: tiffany@rrohio.com

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