Extension Tax: February 2012

Wednesday, February 29, 2012

IRS Terms That You Need To Know When You File For An Extension

Filing a Tax Extension is very simple when you use Extensiontax.com. All that is required to file it is basic information about your business. There are few terms that one needs to know before submitting a Tax Extension for a Business, Individual, or Nonprofit Organization.

IRS Form 7004: This form is used by businesses such as Multi-Member LLCs, C Corporations, S Corporations, Partnerships, Trusts, and Estates. This is commonly referred to as a form for Business Tax Extensions. This IRS Form gives a Tax Extension of 5 – 6 months.

IRS Form 4868: This form is used for filing Individual or Personal Tax Extensions. This IRS form gives a Tax Extension of 6 months for personal returns, 1099 Contractors, Sole Proprietorship's, and Single-Member LLCs.

IRS Form 8868: This form is used by Non-Profit and Exempt Organizations.This IRS form is used to apply for an automatic 3 month tax extension or a non-automatic (additional) 3 month extension.

Tax Extensions: Filing for a Extension with the IRS extends the amount of time to file a Tax Return. It does not extend the amount of time to pay taxes. The IRS wants the taxes to be paid by the traditional filing deadlines.

Filing Status: If you are filing for an individual tax extension, it is required to list your filing status (married filing jointly, single, married filing separately, etc.).The same way if you are filing an Extension for a business or nonprofit organization, it is required to list your business or organization's type and the specific tax form that will be filed.

Business Tax Year: It is common to use the calendar year as the business tax year but that is not the case for every Business.If a business follows a different tax period, that needs to be specified. Also if a business was started or ended during the year, its tax period may be shorter than a full year and that needs to be specified too.

Estimated Tax Amount: A Tax Extension extends only the amount of time to file a tax return. It does not extend the amount of time to pay taxes. Therefore, you need to pay the full Tax amount that is due to the IRS by the traditional deadline.

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Monday, February 20, 2012

No Time To File Tax Return? File For a Tax Extension

Every year brings new tax season and along with it great stress and anxiety among tax payers. Why? Because tax season means collecting tax papers, doing complex calculations, contacting IRS and etc. Result? Stress, time consumption and more stress. Did you know that during the tax season, most of the people lose on their sleep and hence suffer health consequences?

If you are going through the same situation then I say stop NOW. Your health and peace of mind is more important. Keep your papers aside, stop all your calculations and relax. You don’t have to stress over your taxes because you have the option to get your tax return due dates extended by 6months. Yes, you heard it. You have till October 15^th to file your tax return. Wondering how is this possible? Simple, get hold of tax extension form and file it with the IRS.

There are 2 types of tax extension forms.

Personal tax extension Form 4868 : This form is used by individuals, single member LLCs, sole proprietors, 1099 filers and etc to get an automatic 6 month extension on their tax filing due dates. Efile form 4868 and say goodbye to your April 17^th tax return deadline.

Business tax extension Form 7004: This form is used by corporations, multi member LLCs, partnership firms and etc to file their business tax returns on a later date. If you think that you won’t be able to collect all the tax papers to file your return by the due date, go for IRS tax extension. Refer to the tax extension deadlines for 2012 for further details.

NOTE: Many people believe that filing tax extension will give them more time to pay their taxes. However, that is NOT true. Getting a 6 months extension to file your tax return does not allow you more time to pay your taxes. If you think you owe IRS taxes, make sure you pay them along with your tax extension form 4868 or form7004

There are 2 ways to file for tax extension: Paper filing and Electronic filing.

Many years back, paper filing was the only option to file tax returns and extension but due to its complexities and disadvantages, IRS introduced the efile option which is highly recommended worldwide. Want to find out how?

If you opt for paper file method for tax extension filing, you would first have to download the form, fill in the form (search Google for tax extension instructions). Do complex calculations to find out tax amount due to IRS, post the tax extension form back to IRS along with your tax amount cheque and even if your tax extension is approved, you won’t get any acknowledgement from IRS.

Imagine the complexities paper filing carries with it, along with huge costs and time consumption. Besides that paper file depletes our environment. Every year thousands of trees are sacrificed so that more and more paper can be produced. But if you stop paper filing, it would be a boon for the environment.

Electronic filing, on the other hand is super quick, easy and secure. Moreover, if you efile tax extension, then IRS will also provide you acknowledgment via email within few days. Efile is fast, saves time and is cost effective with extensiontax.com

Friday, February 17, 2012

Form 4868-An Automatic 6 Months Tax Extension

April 17 always seems to arrive before people feel they are ready for it, but there’s a simple way to extend this daunting deadline for tax returns. If you’re unable to complete your returns by that deadline, you can file Form 4868, an application for automatic extension, with the Internal Revenue Service (IRS).

When you file for an extension, you’re simply asking for more time to complete your tax forms. The IRS is not granting you more time to pay any taxes that are due. If you owe taxes as of April 17, expect to pay interest – and possibly a penalty – on the amount due if you choose to take the extension. Read on to learn how to give yourself the gift of time, without paying an arm and a leg for the privilege.

Penalties

Whether you’re subject to a penalty depends on the amount of taxes owed after April 17.
Let’s look at the basics:

Failure to File Penalty: If you don’t file an extension request by April 17, the “failure to file” penalty runs at a rate of 5% of the balance due per month, up to a maximum of 25% of the taxes owed.
Failure to Pay Penalty: If you do not pay your taxes expect to get hit with a “failure to pay” penalty that runs at 0.5% per month with a maximum of 25% of your unpaid tax.- that’s in addition to any interest you’ll owe on the balance due.
Interest: If you have a balance due to the IRS after April 15, expect to be charged interest. The interest rate is generally around 8%, which is a lot less than the rate charged by most credit card companies.

To find out what the IRS considers reasonable cause, see Exhibit 7 - Determining Reasonable Cause and Good Faith.

Can’t Pay All Your Taxes By April 17?

What if you need more time to pay your taxes? If the amount you owe is low enough that you won’t be subject to the failure to pay penalty, then file an extension by April 17 and pay the remaining balance due when you submit your tax forms prior to Oct. 15.

If you owe so much in taxes that you won’t be able to pay them off by Oct. 15, one option is to file the paperwork to enter into an installment arrangement with the IRS. This is done by completing Form 9465, and attaching that form to the front of your federal income tax return. On this installment request form, you tell the IRS how much you can afford to pay each month and the day of the month that the payment will be made.

The IRS generally charges a fee of between $52 and $105 to any taxpayer who enters into an installment arrangement. In addition, the IRS will charge interest at the prevailing federal rate (approximately 5% per year). Plus, failure to make a scheduled payment will cause the remaining outstanding balance to become immediately due. In addition, you generally aren’t allowed to enter into an installment agreement if you have an open installment agreement for a previous year that hasn’t been paid off yet.

Additional Incentive for Self-Employed Individuals

Self-employed individuals might benefit from filing for an extension as well. That’s because they have until the due date of their tax return, including extensions, to fund their retirement accounts for the year. If an individual doesn’t have a retirement plan set up yet, an SEP IRA can be established as late as the extended due date of his or her tax return, or Oct. 15.

By filing Form 4868 with the IRS, you get an additional six months to fund your retirement plan and deduct the contribution made on your prior year’s return. One strategy common to self-employed individuals is to pay the full amount of taxes due with an extension, and then to fund their retirement plans prior to Oct. 15.

Keep in mind that an extension does not give you any extra time to fund your Roth IRAs, Traditional IRAs and Coverdell Education Savings Accounts (ESAs). The due date for these tax-advantaged retirement plans and college savings accounts is April 15.

Always Submit Your Paperwork On Time

The moral of this story is simple. Because the ‘failure to pay’ penalty is so much smaller than the ‘failure to file’ penalty, always try to file all of your tax returns and extension requests on a timely basis, even if you’re unable to pay the full amount of the taxes due at that time. Simply filing on time will save you a lot of money and frustration, so take a moment to check your filing now and see whether an extension would benefit you.