Are you feeling unease about the impending Tuesday, April 17 tax filing deadline? Fear not –the Internal Revenue Service (IRS) permits a taxpayer to file an extension to allow time to gather the documents necessary to submit a complete and accurate return. Before doing so, however, there are some important things to consider.
Is an Extension the Same as Delinquency? First and foremost, extending your personal Form 1040: U.S. Individual Income Tax Return is not a negative thing and does not garner unwelcome attention by the IRS. All taxpayers are legally allowed an extended time to file their tax returns. Form 4868 is the appropriate form to use in filing such extension. The return will not be considered late if this form is filed by April 17 and the tax return is filed by this year’s extended due date—Monday, October 15.
When opting for a tax extension, it is crucial to note that an extension to file is not an extension to pay. One hundred percent of the anticipated tax due must be paid by April 17, 2018, to avoid interest and penalty assessments. Further, portions of the tax may be due earlier than April 17 if a taxpayer does not have federal income taxes withheld from employee wages, as reported on Form W-2: Wage and Tax Statement. If that’s the case, he or she may be liable for estimated tax payments that must be submitted quarterly, with the unpaid balance due April 17.
Why File an Extension?
Some taxpayers receive tax documents, other than W-2s, that are unavailable until after the tax return due date.
The following are common examples:
- Schedule K-1: Partner or Shareholder Share of Income, Deductions, Credits, etc. – related to an ownership interest in a business entity
- Form 1099 from an investment account – such as Merrill Lynch or Ameritrade
- Rental income and expenses for property owned by the taxpayer
- Health Savings Account (HSA) statements reporting contributions to, and distributions from, the account
Many of these documents require longer preparation time on the part of the reporting entity, and in some cases, these documents may even be restated. In the case of Form 1099, it is not uncommon for an investment broker to issue amended or restated documents with changes to key tax numbers.
Other Considerations When Extending Form 1040
Suppose a taxpayer extends his or her Form 1040 and pays all of the tax due timely. That’s it, right? Not so fast! A taxpayer must also consider state tax filings. Some states, but not all, will allow a taxpayer to use the federal extension to also extend state tax return filing. In other words, no additional form need be filed for the state extension. When in doubt, a taxpayer should consult a tax advisor or the state department of revenue to be certain of a state’s requirements.
Additionally, once a taxpayer extends a 2017 tax return, he or she still must consider the quarterly estimated tax payments due for 2018. As previously noted, an extension does not alter or extend due dates for tax payments. Though a taxpayer will have until October 15, 2018, to file his or her 2017 tax return, he or she must continue to pay 2018 quarterly tax payments as applicable.
Retirement plan contributions are another consideration. Some plans allow contributions only until the initial due date of the tax return, so for this year, April 17. Other plans allow contributions until the extended due date of October 15. For example:
- SEP Plans – In general, contributions may be made until the extended due date of the individual tax return.
- Individual Retirement Accounts – In general, contributions must be made by the initial due date of the individual tax return, not the extended due date.
Taxpayers wishing to contribute to a retirement plan should check with their tax or financial advisors prior to April 17 to determine the applicable due date for their specific retirement plans.
Many taxpayers believe that extending their income tax return raises red flags with the IRS. Nothing could be further from the truth. Countless taxpayers extend the filing of their federal returns each year – it is a common and completely acceptable practice. As long as a taxpayer pays his or her income tax timely, all is well.
If you have questions about a federal income tax return, particularly extensions or other tax documents, or if you would like to request a speaker on this topic for your organization or event, contact one of our PYA executives below at (800) 270-9629.
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