What is a Tax Extension?

When people plan to file taxes late, they may be able to do so without penalty if they first file a tax extension. This is a request to have more time to prepare taxes that may be granted by various tax boards. Different countries have various rules regarding tax extensions. Some countries offer them to most people without needing a reason, while other countries scarcely ever allow them. For instance in Canada, unless the reason for requiring an extension is extreme, taxpayers can’t simply get one by asking.

In contrast, places like the US offer tax extensions regularly. There are even forms available to make this process go smoothly. Private individuals must file Form 4868, which can be downloaded from the Internal Revenue Service (IRS) website. This form grants an automatic extension of six months.

Filing this extension by the date taxes are due prevents you from paying a late filing penalty. However, the bligation to pay taxes by the initial due date of forms does not change. If a taxpayer cannot pay his or her taxes immediately at the regular tax deadline, fines, interest and penalties may still be incurred. Form 4868 asks the taxpayer to estimate taxes and pay them, even if the paperwork hasn't been filed yet. When people are fairly sure they won’t owe money, they don’t have to send money in.

Businesses and partnerships may also file tax extension forms with the IRS. There are a number of different forms. Standard businesses may file Form 8809 and partnerships need to file Form 8736. Be sure to get the appropriate form for your type of business. Again, rules about taxes owed may apply, and taxes should be estimated and paid before prior to filing all the forms.

In the US, most people must file state tax forms too. Since rules can vary from state to state, people will want to check the laws applying in any state they must file. Some states do accept the federal form and grant a tax extension based on it. Others require their own forms and the best thing to do is to look at the state franchise board website and follow its instructions on tax extension filing.

Once people have filed a tax extension, they should try to get their taxes done promptly. If filers believe the government owes them money, it’s important to know that this money won’t be issued until all forms are filed. Most financial experts recommend that people file their tax documents as soon as possible after initial due date.