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Home2017Essential Guide to Tax Extensions for Business and Individual Taxpayers

Essential Guide to Tax Extensions for Business and Individual Taxpayers

Essential Guide to Tax Extensions for Business and Individual Taxpayers

Tax filing season is almost underway. Sure enough without proper preparation, filing income tax returns and information returns could be headache-inducing and stressful.

Everyone has his or her own reason for delaying tax filing a few more months. Most of the taxpayers are crippled to prepare necessary papers, thus they need an extension, while others are still struggling to cope up with their new tax situation. For whatever reason, a tax extension is what everyone needs in order to abide by the rules of the state and the IRS.

It is the only sure chance in order not to delay. If you’re not aware, failing to file on time is way more serious than failing to pay. The IRS advises filing your taxes even if you can’t pay in full and within the due date. Failing to comply with the deadline can be viewed as dodging tax responsibility or tax evasion. This failure, be it intentional or not, entails a costly penalty.

Penalties for not Complying within the deadline

Before we jump start, eFiling Plus has an extensive discussion on this topic of tax penalties. For more detailed discussion you can refer to the article Preposterous Cost of Late Tax Filing.

Failure to File Income Tax Return

A penalty of 5% per month or partial month not exceeding 25% of unpaid taxes are imposed by the IRS for failure to file. As we have provided before, this example will suffice to illustrate this more clearly:

Reese owed $3,500  of taxes and filed his tax returns 33 days  after the deadline. She will be fined 5% of $3,500 twice because she is late for the first month and 2-3 day part of the following month:

(3,500 x 5%)2 = $350

Reese is fined $350 for failure to file Income Tax return which is worth a new mid-range smartphone!

Failure to File 1099 Forms

For information returns like the 1099 MISC form due on 31 January, the penalty is more costly. A failure to file 1099 has a tiered penalty scheme:

  • A  fine of $30 per information, is charged if you file within 30 days of due date with the maximum penalty of $75,000;
  • While a fine of $60 per information Form is imposed, if you file more than 30 days after the due date until August 1 with maximum penalty of $200,000;
  • And Pay $100 per information , if you file after August 1 with maximum penalty of $500,000

Remember that you can avoid all these penalties if and only if you file on time. You can delay the deadline by filing a tax extension. But still, you have to observe the original deadline in order to file your extension request on time

Tax Filing Extensions

Tax Filing Extensions

As projected by the IRS, the number of extension request is in a constant increase annually. This attests to the fact that in a way or another, almost everyone will avail of tax extensions.

For individual Taxpayers

Income Tax Return

The filing date for individual income tax return is April 15, but you can claim an automatic 6-months extension period. So the deadline will be moved to October 15, 2015.

How to file for Extension?

You have to file Form 4868 either on paper or online through the IRS efiling service. Your extension request must be filed by the due date for your return, Form 1040. Take note that you have to present your prior year’s Adjusted Gross Income (AGI). Keep for your record the electronic acknowledgment that IRS has accepted your request.

But for those who will file Form 2555 or 2555-EZ, the extension request form to use is Form 2350. And the same with Form 4868, the deadline to file Form 2350 is by the due date of your individual income tax return.

Remember

Tax extension requested from the IRS does not follow an extension from the state agency. The rule depends on the state, most will require separate extension request.

Filing Tax extension does not extend your payment deadline

Forms 1099

The deadline for filing Form 1099s is on January 31 for Nonemployee Compensation otherwise on February 28. And for those filing electronically, the deadline is on March 31. The form 1099s are information returns that reports to the IRS and the State agency  the amount of a certain type of income taxpayers received which come not from salaries, wages, or tips.

How to file for Extension

You can avail of an automatic 30-day extension by filing Form 8809 on paper or electronic filing. There is no need to provide an explanation for an extension, and under undue hardship, you may request for another 30-day extension.

For Partnership Business

For businesses organized as a partnership, the income tax return due date is on the 15th day of the 4th month after your tax year. For most partnerships, the deadline is on the 15th of April. But the new Highway Bill adjusts the deadline for filing Form 1065 to March 15, 2017 for the tax year 2016.

How to file for Extension

Partnerships can file for an automatic 5-month extension by filing form 7004 code 09. For the tax year 2016, the extended due date is on September 15, 2017, a period of 6-month extension.

For Corporation

Businesses organized as Corporation are normally due to file income tax return (Form 1120) by April 15.

How to file for Extension

Corporations due to file Form 1120 can claim an automatic 6-month extension by filing form 7004 by the original due date of filing.

Tax Payment Extension

Tax Payment Extension

As mentioned before, having tax extension does not delay your tax payment deadline. But sometimes, filing tax returns is not the problem, but paying is. In case that you are not able to pay the tax liability by the due date, you should still and must never fail to file the income tax returns. When time comes that you are unable to pay the taxes you owe, there are available options to choose, and the IRS can help you.

The IRS advises that you can file your tax returns on time and pay as much as you are able, then apply for…

Installment agreement

You can opt to make your payments on a monthly basis through an installment agreement. This way you can avoid interest and penalties for not paying your taxes in full.

Online Payment Agreement (OPA) Eligibility:

  • Individuals owing $50,000 or less
  • Businesses owing $25,000 or less in payroll taxes

Or file a Form 9465, Installment Agreement Request and Form 433-F

Monthly Installment Plan.

Applying for OPA means that you agree to pay the monthly payments on time and meet all your future tax obligations.

Setup Fee

The IRS charges a setup fee for a monthly installment plan that costs $120. If eligible, you may be qualified for a reduced setup fee costing $43 which you can personally request if not automatically indicated by filing Form 13844. Short-term payment agreement are free from setup fee.

Short-term Payment Agreement

If you owe less than $100,000 you can apply for an additional time to pay your tax in full. The additional time that the IRS grant is 120 days free of setup charge.

Extension Time to Pay

You can file form 1127 if you are not in the capacity to pay your tax debt in full. The form is especially for individuals who may face “undue hardship” if you pay your tax on the date it is due. It does not indicate a specific extended deadline (you have to fill that up) but generally, IRS will not approve an extension beyond 6 months. However, the amount determined as deficiency can be extended up to 18 months from the payment due date.

Now you have everything you need so you will not file or pay your taxes late. Working with your professional tax preparer is still a good practice to furnish your tax extensions. But best of all, simple practices like keeping your books and records neat and complete, and doing your tax work electronically can save you time and spare you the need from filing tax extensions. Efiling Plus can help you with filing W-2 and 1099 forms, fast and reliable.

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