IRS Tax Deadline: When and How To File a Tax Extension

by Jason on April 12, 2010

With the IRS tax deadline of April 15th on the horizon, procrastination may actually turn out to be a good thing for some taxpayers who have not filed yet.

You may want to file for a tax extension if you are trying to claim a home-buyer tax credit this year, you want to reverse a Traditional IRA to Roth IRA conversion, you have not received certain tax documents, or something major has come up in your personal life.

Fortunately, the IRS provides automatic six-month extensions from the IRS tax deadline, which gives taxpayers until October 15th to file.

It is important to understand that this is not an extension to pay, as the IRS usually needs 90% of your actual taxes owed by the tax filing deadline of April 15th.

If you do not request an extension of the IRS tax deadline and you file late, you will be hit with a Failure to File Penalty of 5% per month (up to 25%) on any unpaid taxes.

When Is It Warranted to File a Tax Extension

Claiming A Home Buyer Tax Credit

We all know about the home-buyer tax credit that Congress extended with the ARRA or the American Recovery and Reinvestment Act of 2009.

This act allows a taxpayer to purchase a home and receive a tax credit up to $8,000 dollars ($4,000 if married and filing separately).

However, you need to purchase by April 30th, 2010 (or have a signed contract by then with a closing before July 1st) and this credit starts to phase out once you hit a certain income level.

Therefore, if you will have a signed contract by April 30th or you plan on completing the purchase of a home on or before April 30th, requesting an extension from the tax filing deadline is warranted in order to claim this tax credit on your 2009 tax return.

If you have filed already, you can amend your tax return if you really need the credit in 2009, otherwise, you can just claim it on your 2010 tax return.

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Reversing A Traditional IRA to Roth Conversion

If you converted a Traditional IRA to a Roth IRA in 2009, you will owe taxes this year on the conversion since the Traditional IRA was funded with pre-tax dollars.

However, if your IRA significantly lost value (which happened to many in 2009) since the conversion, you would be paying taxes on money that is not there anymore.

Therefore, you may way to “recharacterize” or reverse this conversion and you have until October 15th, 2010 if you converted your Traditional IRA in 2009.

If you have already filed your tax return, and you want to recharacterize your IRA conversion, you will have to amend your tax return.

However, if you have not filed yet, you can file for a tax extension from the tax filing deadline, which will give you plenty of time to recharacterize and file.

You Have Not Received Necessary Tax Documentation

W-2s, 1099s, and other documents are often misplaced, lost, or never received. If you have not called your employer for your missing W-2, or your financial institution for your missing 1099(s), then you need to do that.

You could file for a tax extension, if you believe you will have these tax documents by October 15th, 2010. On the other hand, you could file by April 15th by using Form 4852, “Substitute for Form W-2,” to help estimate your earnings and withholdings using pay stubs and other information.

If the numbers you estimated were off, you will need to amend your tax return using Form 1040x. This can be a hassle, where it might have been just easier to just file for a tax extension in the first place.

Personal Events

If you’re up against the tax filing deadline because of personal issues, you may also want to file for a tax extension.  Maybe you are suffering from a sickness, a loss in the family, a natural disaster and so forth.

The IRS does not care why you need a tax extension. Tax extensions are automatic.

How To File for a Tax Extension

Basically, there are three easy ways you can request a tax extension. You need to request this extension by April 15, 2010.

  • Read, print, and fill out Form 4868, and send it to the correct IRS address for your state (on page 4 of form)
  • eFile Form 4868 using IRS e-File or use a software program like TurboTax or Tax Cut
  • Pay all or some of your estimated taxes due with a credit card or debit card (not recommended just to request an extension)

When filing for your tax extension, it is a good idea to send the IRS at least 90% of what you actually owe.

Form 4868 has a nice worksheet you can use to estimate taxes owed. Remember, even though you may have an extension to file, this is not an extension to pay.

This has been a guest post by Matt Robinson.  Matt is tax accountant who specializes in tax debt settlement and other tax debt solutions.

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