Friday, September 7, 2012

Preparing to File a 1040 Extension

Federal tax returns are due April 15. While many American taxpayers will have their 1040 returns completed, processed and refunded by the end of February, others will not be prepared to turn them in or pay the balance owed by the due date. The Internal Revenue Service recognizes there are situations when an extension may be needed and grants them to those who properly file for one.

There are many reasons why an extension may be necessary. Extenuating circumstances like family emergencies, illness and death are often to blame for the postponement of filing tax returns. Plain old procrastination is another reason. Some people don't know how to file taxes properly and feel overwhelmed when tax season comes. Others are out of the country and unable to file. Even still, many people do not have the money they owe for state and federal taxes and will not be able to complete their returns by the deadline.

No matter the explanation, tax returns are still due April 15 and the IRS expects them to be in by that date (although there are special exceptions made for those who are out of the country April 15). Failure to file can result in penalties that cost as much as 50 percent of the total tax bill which can add up to hundreds or even thousands of dollars. If you know you will not be able to file your income taxes by April 15, you need to file an extension. In doing do, you will avoid any late filing penalties.

There are a number of other benefits to filing an extension, often used strategically by the taxpayer to save more money. After a taxpayer receives a six-month extension, he or she can use that time to pursue various tax breaks. For example, charitable contributions made during the months after the extension was approved can be applied to the previous year's tax return.

To get an automatic six-month extension, you will need to file Form 4368, which is the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return on or before April 15. The IRS used to grant a four-month extension and then a second extension of four months if it was needed but now an automatic six-month extension is given.

In preparing to fill out this form, there is certain information you need to have handy. You will need to provide your name and social security number and if you are married, you will need the same information from your spouse. You'll also be asked to provide your current address. You will need to have a copy of your previous year's tax return. There is a place on Form 4368 for you to provide an estimate of your tax liability for the current year so you'll need to know how much money you have already paid into taxes for the current year. This information will be available on your W2 or 1099.

There are several different ways to file an extension. One way is to e-file which is usually done by using tax preparation software that allows you to submit Form 4368 electronically. You can also download the form from the IRS website, fill it out manually, and send it through the mail. If you chose to do this, be sure to make copies of everything you send and use certified mail so there is timely proof of your submission. That way, if the IRS contests your extension or suggests it was not filed by the due date, you have evidence to prove otherwise. You should send your extension tax form to the IRS Service Center where you file your tax return.

Another way to file an extension is to use a professional tax service. Using a tax service ensures the form is filled out properly by a tax professional which can save time and the headache of doing it yourself. These days, it usually doesn't cost more than to file an extension through a tax professional.

Sending a 1040 extension does not require a payment, although a payment may be sent with the completed form which will reduce the cost of what you will have to pay later.

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