April 15, the tax filing deadline for 2014 federal income tax returns, will be here before you know it. If you won’t be able to file your income tax return by then, be sure to file for an extension using Form 4868. The extension is automatically granted and gives you until October 15, 2015, to file your return.
Be aware that an extension of time to file does not extend the due date for payment. Instead, you must estimate how much you’ll owe and pay that amount with the extension request. The IRS will assess interest on any unpaid balance. In addition, unless you pay at least 90% of your estimated tax liability by April 15, you may owe a late-payment penalty.
Even if you can submit your tax return by the April 15 deadline, in some circumstances getting an extension might still be a good idea.
For example, say you can’t pay all of the tax you owe by April 15. An extension will allow you to defer paying part of the balance until October 15. As long as you meet the prior-year safe harbor rule or pay 90% of your total current tax liability by April 15, you should not be subject to penalties on the balance due. And even though you’ll owe interest on the shortfall, the interest rate charged by the IRS may be less than the cost of borrowing elsewhere.
Are you self-employed? If you need a few extra months to fund your retirement plan fully, you might benefit by filing for an extension. To be deductible, retirement plan contributions must be made prior to the due date of your tax return, including extensions. By filing Form 4868, you have up to six additional months to fund your plan. Another benefit of filing for an extension: If you don’t already have a retirement plan, you can use the extra time to establish a SEP-IRA.
To discuss whether you can benefit from an extension of time to file your tax return, please give us a call.