If you think wooden shoes are uncomfortable, try missing payments and deadlines on your 2010 tax extension.
For those who filed IRS Form 4868 for an automatic tax extension, you won a six-month reprieve from paying estimated taxes until Oct. 17, 2011 (for most calendar-year taxpayers). Despite your temporary amnesty, remember Uncle Sam will ultimately collect — with interest to boot.
If you were out of the country at the April tax deadline — perhaps taking that long-overdue trekking adventure through Europe — you earned two extra months (until June 15) to file and pay without requesting an extension. But again, your escapism didn’t free you from interest owed on overdue amounts; and, you must have filed Form 4868 if you needed more time beyond June.
Still unsure? Consult you trusted tax preparer, because nothing will bust a post-vacation vibe faster than the IRS going “klompen” over your 1040. Whether you’re sitting on an anemic portfolio or one that merits a “Big 4” accounting firm review, take it from a national organization representing financial professionals: be aware of state rules.
“Some states accept this federal extension and some do not,” said Melissa Labant, a tax expert with the American Institute of Certified Public Accountants in Washington, D.C. “The general rule of thumb is to be aware there can be different rules for state purposes” on extensions.
But in keeping with a vacation frame of mind, taxpayers might warm to the news that requesting a tax extension doesn’t necessarily mean they’ve drawn the attention of the IRS audit arm. “Be assured, we are not aware of any particular red flag to the IRS” from filing for an extension, Labant said.
Individuals requesting extensions generally fall into the categories of procrastinators, self-employed or high-earning taxpayers with complicated tax situations and investments, Labant noted. The latter category might include individuals involved with partnerships who have to wait until the partnership files a K-1 form, at which point individuals can know their share of income and expenses.
Filing extensions benefit taxpayers who are waiting for additional information in order to file a more accurate return. “Amending a return can be time consuming and expensive. That’s why people wait,” Labant said.
If you filed an extension and owe money, Labant recommended paying the feds quickly to hold down the accumulation of penalties and interest. On the flip side, if you are entitled to a refund, you don’t want to delay getting your money.
If you miss the October 17 deadline, file as soon as possible. As Labant warned, “Don’t wait for the IRS to contact you.” After all, if you marshal your pennies and continue your wealth-building plan, perhaps you can afford that trip to the Netherlands to personally pick out your wooden clogs (known as “klompen”). Now that’s a preferable way to experience Dutch.
WHAT DOES THIS MEAN FOR YOU? It makes more sense to file your taxes by the April 15th deadline. But if you have extenuating circumstances and need to request an extension, you must file Form 4868 by April 15th — at which point October 17th becomes your new extended tax filing deadline. Also remember that the IRS or your state may still accrue interest on your extended tax filing. All passes aren’t free!