A tax extension is a request for more time in which to send returns to the federal or state taxing authorities in which you owe tax. And it isn't a 4-letter word.
A request for more time DOES NOT give you more time to pay any tax due. The federal and/or state need to receive 100% of all tax due by April 15th (or the actual filing deadline, if adjusted by weekend/holiday) each year in order to avoid penalties and interest charges.
Therefore, you the tax payer have the responsibility of estimating whether you might owe tax.
But wait - how can someone know how much they will owe before the taxes are calculated!?!?
How to Estimate Taxes Owed
You are the only one who knows what you have earned, and what has changed with your income over the past year. If you want help in estimating, you can go to www.irs.gov or any state taxing authority’s websites who all have calculators to assist you.
Most states and the fed also have call-in phone lines. It often takes quite some time and you could still end up guesstimating wrong. If you are truly averse to any possibility of any interest or penalty for under payment - then you could over-pay estimates before the filing deadline.
For instance, if last year a couple had $8,000 of total taxation on $90,000 of income and this year they had already had withheld $8,000, but they have sold additional stock, inherited an IRA, or had a large gain in business income, and they are nervous about estimating correctly.
They just send an additional $4,000 of estimated on top of the $8,000 they have already had withheld. 50% more than what they paid last year should keep them from owing or worrying about penalties. In a few weeks we will get the refund of over-payment back so, either way, it’s a few weeks of you owing interest for underpaying or a few weeks of the IRS having your money and paying no interest to you.
Always remember that any form being mailed by you to a federal or state taxing authority should be sent “return receipt requested” at the United States Postal Service.
Anyone using e-file extensions online should also print a copy for themselves and possibly for the tax preparer.
The paperwork you can have another 6 months to send, its just the tax itself that they want by the April deadline!
Need help with estimating your tax, filing an extension or any tax related topic for that matter? Call us at 678-981-6331.