RIVERWOODS, Ill.--(BUSINESS WIRE)--With only a few days to go before the April 15 deadline to file income tax returns, some who got a late start or need more time may contemplate filing a six-month extension. Wolters Kluwer Tax & Accounting US provides some key points taxpayers should know before time runs out.
“What’s critical to know is that filing an extension does not give you more time to pay if you owe the IRS,” said Mark Luscombe, JD, LLM, CPA and Principal Federal Tax Analyst for Wolters Kluwer Tax & Accounting US. “If you need an extension, you should have a good idea of any taxes you may owe and be ready to pay that amount by April 15. But if you can’t, then you can work out an agreement with the IRS to pay the balance.”
Additional filing deadline options are in the following checklist:
Extension Filing Basics: Most taxpayers file for an extension because they simply need more time to get their paperwork in order to provide to the IRS.
___ For those who may be dealing with personal issues, having trouble obtaining receipts for deductions or just need more time just to get every part of their return completed, a six-month filing extension is available by submitting Form 4868, “Application for Automatic Extension of Time to File U.S. Income Tax Return.”
___ The form provides a six-month filing extension to October 15, but it must be filed by April 15 to avoid late filing fees and possible penalties.
___ It’s not necessary to explain why an extension is needed when filing Form 4868, the extension is automatic.
___ The form, which can be downloaded for free from the IRS by clicking here, provides additional instructions on getting a filing extension, completing each part and details on where and when to file.
___ For the current 2014 tax return only: The IRS has created an exception to the late filing penalty to the extent that the penalty relates to taxpayers who received an incorrect Form 1095-A from the federal health insurance exchange. Those taxpayers have until October 15, the normal extension date, to file their tax returns, but they still should file the Form 4868 extension by April 15.
Options If Needing More Time to Pay: If the issue isn’t about the documentation, but has to do with the inability to pay, then filing for an extension is not the best alternative. Instead:
___ The IRS recommends filing your tax return on time and making a payment for as much as you can by check, credit/debit card or through an electronic funds transfer (EFT) from a bank account.
___ The IRS will acknowledge the payment and send a bill for the balance due. Options such as an Online Payment Agreement (OPA) and other payment plans are available for taxpayers who qualify by visiting irs.gov and clicking on the “Payments” tab at the top left of the home page.
Other alternatives include:
Borrow, liquidate assets or charge it
___ Taxpayers who owe and can’t pay their entire tax bill when it’s due, but can pay the full amount within 120 days, can ask the IRS for a short-term administrative extension.
___ Another option besides using a credit card is to secure a bank loan, such as a home equity loan, or cash out a retirement account. While going into debt to pay off a debt may not seem the best option, the interest rate and fees assessed by a bank or credit card issuer may be lower than the interest and penalties assessed by the IRS. Credit card payments must be made electronically, through personal tax software, a paid tax preparer or through credit card service payment providers.
Enter into an installment agreement with the IRS
___ The IRS is required to accept installment payments if a taxpayer has a good filing and payment record over the past five years, the amount owed is not more than $10,000 and it can be paid off in full within three years.
___ Small businesses may enter into “streamlined” installment agreements if their debt is below $25,000 and they agree to pay it off in 24 months. This option is available to small businesses that file as an individual or as a business.
Reach an offer in compromise with the IRS: In some instances, the IRS may accept less than the full amount due. This typically occurs if the taxpayer can show that the full tax debt could never be collected or they have a dispute with the IRS as to how much is owed, but neither party wants to enter into a legal battle to resolve the issue.
___ Taxpayers with incomes of up to $100,000 (up from $50,000) and who have a tax debt below $50,000 (up from $25,000) are eligible for a streamlined offer in compromise process from the IRS.
“The worst thing you can do is ignore your tax liability,” Luscombe added. “Although some taxpayers may be feeling a lot of pressure to make the deadline, the IRS is willing to work with those who come forward and make arrangements with their professional tax preparer or on their own.”
About Wolters Kluwer Tax & Accounting US
Wolters Kluwer Tax & Accounting US (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The CCH® ProSystem fx® Suite, CCH Axcess™, CCH® IntelliConnect®, CCH® IntelliConnect Direct, CCH® Accounting Research Manager® and the U.S. Master Tax Guide®. Wolters Kluwer Tax & Accounting US is based in Riverwoods, IL. Follow us on Twitter @CCHMediaHelp.
Wolters Kluwer Tax & Accounting US is part of Wolters Kluwer (www.wolterskluwer.com), a market-leading global information services company. Wolters Kluwer had 2014 annual revenues of €3.7 billion ($4.2 billion), employs approximately 19,000 people worldwide, and maintains operations in over 40 countries across Europe, North America, Asia Pacific, and Latin America. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are listed on NYSE Euronext Amsterdam (WKL), on Bloomberg (WKL NA) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).