Don't rush to file taxes now
With the April 15 deadline looming, millions of Americans still aren't ready to file their tax returns ... and that's not a problem. The real filing deadline is Oct. 15, so many who haven't filed by now are better off waiting instead of rushing to get it done by April 15.
A hastily prepared return can include errors and be incomplete. That's why filing an extension is a better approach, especially if you need more time to do a thorough job preparing your return.
And you don't need a reason to file for an extension -- you're automatically granted an additional six months to file your returns, with no questions asked.
But if you still need a good reason to do it, here are several:
If your tax situation changed in 2014 (you bought or sold a home, changed jobs, started a business, exercised stock options, etc.), you'll be filing some new forms and will need more time to do your research and make sure you've gathered the necessary information.
Also, many financial institutions and brokerage firms typically send corrected 1099 forms with revised amounts for qualified dividends and foreign taxes. Taxpayers with investment income may want to file an extension if they typically receive a corrected form 1099.
If you file now and then receive a corrected 1099, you'll have to file an amended tax return, which can be confusing. For this reason, it's preferable to file an extension and wait until after you get the corrected 1099 before filing your return.
Finally, most professional tax preparers are swamped right now. Instead of being part of the rush of last-minute filers, ask your preparer to file an extension. This will give him more time to finish your return later when he can give you his full attention and do a more thorough job.
To get an extension, you'll need to file Form 4868, Application for Automatic Extension for Time to File U.S. Individual Income Tax Returns. The deadline to file for an extension is still April 15, and if you don't at least do this, you'll owe IRS penalties and interest for late filing.
And while filing an extension extends the deadline to file your final 2014 tax return until Oct. 15, it doesn't give you more time to pay the taxes you owe. If you don't pay the 2014 tax you owe by April 15, the IRS can charge interest at a current rate of about 3.4 percent on the unpaid amount. It can also charge a monthly failure-to-file penalty, which is a combined amount of 5 percent (4.5 percent late filing and 0.5 percent late payment) of the tax owed, up to a cumulative maximum of 25 percent.
To avoid these penalties, you'll need to come up with an estimate of the 2014 tax you owe and submit a payment with the Form 4868. To avoid additional interest charges and a late payment penalty, you have to have paid (from withholding, estimated tax payments and what you pay with the extension) at least 90 percent of what you owe for 2014, or have paid an amount equal to 100 percent of your 2013 tax liability (110 percent for taxpayers with prior year adjusted gross income greater than $150,000).
Keep in mind that filing for an extension for your federal tax return doesn't automatically extend the filing deadline for your state return. So, make sure to also file for an extension for your state and pay the state income taxes you owe as well.
Filing an extension is free. For your federal return, you can use the IRS Free File service. Most states also offer this service on their websites.
Finally, don't worry: While many things can make your tax return more likely to be the target of an IRS audit, filing for an extension isn't one of them.