Should You File A Tax Extension?
You made this year's tax deadline by the skin of your teeth and the help of your computer software. In the rush to file, however, you aren't certain you covered everything correctly. Often, taxpayers miss deductions that they were entitled to. In other situations, you may shortchange the IRS, which is never a good idea. If you find yourself in this situation again, you should consider filing for an extension, allowing you six more months to get your financial ducks in a row.
Penalties
Several bad things can happen to you if you either file the wrong information or miss the tax deadline. For instance, independent contractors often receive 1099s from various clients. It's easy to overlook one or two, particularly if you are rushed. Also, you may simply not receive your copy in time, although companies are required to mail them out by the end of January. If you file and do not list a 1099 but the government has their copy, they are going to send you a stern letter with a demand to pay tax with added interest.
If you get your information late and can't meet the deadline, you are better off filing for an extension than paying the failure to file penalty. An extension does not mean you can pay your taxes late. You should estimate them and then send them in before tax day. However, if you can't pay, the fine for that omission is less than the failure to file penalty. If you pay your taxes late, you will be penalized around .5% of the amount due each month. The fine for not filing on time is 5%. So, the lesser of the two evils is to file for an extension and pay late if you must.
Process
The process of filing for an extension is simple, and if you file the form correctly, the government will grant the extension. You will need to check your state to see if you need to file a separate extension for it as well. For instance, Illinois grants an automatic six-month extension for its taxpayers, so no additional paperwork is necessary. Again, your tax payment is still due on tax day, but your return can wait for six months.
Professional Help
If you are struggling to get your taxes done correctly and on time, seek help from a professional. They can file the appropriate form for you and then help you gather missing information and correct errors. Also, they can keep you from having to file an amended return, a sometimes costly procedure.
Filing for an extension can help you in many ways. It's far preferable to ask for more time than to file incorrectly. Also, experts believe that filing your return in October makes it less likely that you will be audited, so there are perks to this situation. Gather all your tax materials and seek the help of an experienced tax preparer (such as one from Rainbow Tax Service Inc) in plenty of time to make the best decisions concerning your taxes.