As April 15 inches closer, many are beginning to get their tax documents together and prepare to file their tax returns. However, there are many who don’t have all their tax documents by the requisite time, or who want a little extra time to make some savvy tax moves for their 2009 returns. In such cases, it can be tempting to file anyway, and then file an amended return later. This may not be the best choice, though. Instead, consider filing for an extension.
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Anyone can file for an extension of six months on their tax return, meaning that you have until October 15 to file your tax return. You still have to make an estimated payment, though, by April 15 on what you think you will ultimately owe. If you don’t, the IRS will start charging you interest, and if you underpay by more than 10%, there are additional penalties. Even with this, though, there are advantages to filing for an extension.
An extension can be filed easily — and electronically. All you need to do is submit Form 4868 (it’s only a page long) by April 15. When it comes time to file your return, you can do that electronically as well. However, when you file an amended return, it has to be done on paper. Your paper amended return takes longer to process, and is more likely to be audited than an extension. Instead of filing your return with missing documents, and then amending later, it is usually easier to get an extension. Then you have plenty of time to work on your complicated tax return, and get all the necessary documents together.
Those who are most likely to benefit from an extension are those who want to take advantage of special tax credits and deductions. Those taking advantage of the home buyer tax credit can actually apply purchases made this year to their 2009 taxes. So, if you have a contract by May 1, and you close before July 1, you can put your credit toward your 2009 tax liability — if you would rather do that than put it on your 2010 taxes.
Another way to take advantage of the extension is for those who are converting to a Roth IRA, and want to use the option to reverse their conversions by October 15. It can also be helpful for those who are opening traditional IRA and want to take the deduction on 2009 taxes. And, of course, if you haven’t got your dividend statements or K-1 forms in time to include in a return by April 15, filing an extension can simplify matters.
You do need to be careful, though, if you are involved with offshore accounts. Those with signature power have to file a special form by June 30. There is no filing extension attached to this, since its a non-IRS Treasury form.
If you have a complex tax return, or if you are planning on taking advantage of moves that can reduce you 2009 tax liability, you might be better off to file for an extension while you consider your tax checklist. (Just remember that you still have to pay your taxes by April 15.) It doesn’t take much time, and a tax professional can help you decide if its a good idea in your specific situation.