How to Get a Tax Extension

By Wendy Connick Markets Fool.com

Having your taxes ready to go by the April 15 deadline (or April 18 this year, thanks to a D.C. holiday) isn't always an option. It may take months for all the forms you need, including W-2s, 1099s, and K-1s, to arrive in your mailbox. And sometimes life just gets in the way of having the time to sit down and work out your tax return.

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If that describes your current situation, don't panic -- you can easily get a six-month extension to collect all the information you need and crunch the numbers.

Form 4868 to the rescue

Filling out and submittingIRS Form 4868 gives individuals an automatic six-month extension on their federal taxes, allowing you to wait until Oct. 15 to file your tax return without triggering a failure-to-file penalty. If you need an extension on your state taxes as well, your state department of revenue can tell you how to proceed.

However, note that Form 4868 does not give you an extra six months to pay your taxes. If you want to avoid a failure-to-pay penalty -- plus interest! -- you'll need to pay your taxes at the time you file the Form 4868. Of course, there's one little hitch: How the heck do you know how much to pay when you haven't prepared the tax return yet?

Image source: Getty Images.

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Estimating your tax bill

The answer is to do some rough calculations and come up with an estimated tax bill. For this exercise, you'll need at least your previous year's tax return and your W-2 and/or 1099-MISC forms (you'll receive the latter if you worked as an independent contractor). If you have other informational forms, such as the statements from your mortgage lender and brokerage, you'll be able to get a more accurate number, but these forms aren't strictly necessary.

First, look at your previous year's tax return. Assuming you haven't changed jobs or experienced any major life events in the last year, your current year's tax bill will probably be very close to your previous year's tax bill. Note the number on your 1040 form that indicates how much tax you owed for the year: This appears on line 63 of Form 1040, line 39 of Form 1040A, and line 12 of Form 1040 EZ (as of tax year 2016). This number will give you a starting place for calculating the current year's tax bill.

Next, look at your W-2 form. The form will tell you both how much you earned and how much federal tax was withheld from your paychecks. Compare the amount you earned this year to the amount that appeared on your last year's tax return. If the wages for the two years are very close, your tax bill will also be very close. You can get a more accurate tax estimate by taking the total wages from your W-2 and subtracting the standard deduction for your filing status and exemptions for yourself, your spouse (if married filing jointly), and any dependents. Then compare the result to the federal tax bracketfor your filing status for the year and do the calculation indicated in the tax bracket chart. The remainder is your tax bill for the year. Subtract the amount withheld from your paychecks as indicated on your W-2, and that's how much you still need to pay.

Refining your estimated taxes

If you qualify for extra deductions and credits, you may end up with a significantly lower tax bill than you calculated in the last step. For example, if you don't have access to a 401(k) plan at work and make contributions to an IRA instead, you can deduct those contributions. Again, your previous year's tax return is a great resource; look at the return to see what deductions and credits you claimed last year, and if you qualified for those credits and deductions again this year, then factor them into your estimate.

If you don't want to go through the hassle of refining your estimated number, don't worry about it too much. It's far better to send too much money with your extension request than it is to send too little. Once you've prepared and filed your tax return for the year, you'll get back any extra that you paid; but if your payment turns out to be too low, you'll owe penalties and interest on the difference. In extreme cases, if you make what the IRS considers an unreasonably low estimate on your Form 4868, the agency may void your extension and charge you a late-filing penalty as well.

Filing the extension

Once you've done the math, it's time to file the Form 4868 and pay any taxes you owe. The IRS offers three ways to file your extension and make your payment:

  • File and pay online using the IRS's Free File system;
  • Fill out a paper Form 4868 and mail it in, along with your check, to the address indicated on the form's instructions; or
  • Pay online using the IRS'Direct Pay website and indicate that your payment is for an extension.

If you've hired a tax preparer to do your tax return, the preparer can e-file your Form 4868 for you. Before asking them to do this, find out if they charge to file the extension -- it may be more cost-effective for you to take care of that part yourself. And if your estimated tax bill is more than you can pay right now, go ahead and file the extension anyway and include a partial payment of however much you can afford. That will get the IRS off your back for the short term and give you six months to try to identify more tax breaks for your return.

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