Do you know everything about income tax extensions? Taxpayers should be aware of many common myths when obtaining an extension of time to file. You may have stress with tax inquiries on your home office costs, side hustle revenue, payrolls, and other topics. The best thing is to track the check stub maker while filing taxes.
Top four misconceptions while filing tax extensions:
It is reasonable to ask everyone you know how to handle money received and money owing on their next tax return. However, beware of the advice you hear. It may be more of a myth than reality. Here are four of the most popular tax extension misconceptions.
Myth 1: filing an extension prevents you from having to collect your tax documents before April 15TH:
It is not valid. You must determine if you owe a refund or a balance due by April 15. If you have a balance due, you must pay your tax due within your extension by April 18, 2023, to avoid the failure-to-pay penalty. If you want to make this decision, compile and total all sources of income for the year. You must also consider any prepayments made through withholding or anticipated tax payments. It is useful to collect and add deductions. However, you can calculate them if necessary. You should provide the data to your tax advisor before the April 15 deadline. Your tax advisor can then suggest sensible federal and state extension payment amounts. It will prevent you from penalties. You need a thorough and complete study for the procedure.
Myth 2: filing an extension increases your risk of an audit:
- It needs to be corrected. No evidence that filing an extension raises the chances of an audit. The IRS chooses which returns to audit using a variety of ways, but extended returns are not one of them. The IRS has even publicized the specific reasons why tax returns are often picked for audit.
- These include computer screening, associated assessments, and randomness. The most often used approach uses a statistical procedure in which the IRS compares your tax return to norms for other similarly situated taxpayers.
- The associated examination approach uses pre-identified issues with other affiliated taxpayers—for example, business partners or investors whose returns have already been chosen for audit.
- The last approach, at random, is as simple as it sounds. In 2017 around 5,000 out of 153 million filed returns were randomly audited. However, filing an extension does not improve (or lessen) the probability that it will occur.
- There is some temptation to file a tax return extension. However, you should only choose this option if you expect a tax return. Examining the consequences with your financial counselor before extending your tax return is vital. You can work together to assess appropriability depending on your tax situation.
- This year’s initial tax filing date is Tuesday, April 18, 2023. The deadline for submitting taxes is Monday, October 16, 2023.
Myth 3: filing an extension gives me an additional six months to file and pay my taxes:
You need to be careful. Filing an extension offers simply an extension of time to FILE, not time to PAY. You can avoid the FAILURE-TO-FILE PENALTY using Form 4868 before April 18, 2023. It is true whether you receive a refund or owe money when you file your tax return later in the year. In each month or portion of a month that a tax return is late, the FAILURE-TO-FILE PENALTY is 5% of the outstanding taxes. The penalty will be, at most, 25% of the overdue taxes. However, submitting Form 4868 with the IRS before April 18, 2023, does not guarantee that you will escape the FAILURE-TO-PAY PENALTY. You will be penalized if you owe money when you file your taxes later in the year. Interest charges will be applied to the tax and penalties owed, increasing the total amount you must pay.
Myth 4: applying for a tax extension is difficult, and only some people are eligible:
Filling out Form 4868 and submitting it to the Internal Revenue Service (IRS) is all that is required to file a federal tax extension. You must give some basic personal information and estimate your annual tax due. It should be based on your employer’s personal records and tax forms. Taxes are often only an issue for independent contractors. If you work for an employer, taxes should be deducted from your paychecks, and you should owe the government nothing. Finally, electronically or by mail, submit the form using a tax software program.
You can get an extension if you complete the form correctly and submit it by April 15. There is no need to explain why you want it; no limits exist on who can seek one. However, this does not exclude you from being refused. If you fill out the form improperly or the information you give does not match IRS records, the government may decline your request. If your tax extension request is refused, double-check the form for accuracy and contact the IRS if you have any issues.
You might know less than you think you do about tax payments. However, knowing how to file taxes might help you avoid costly mistakes during the tax season. It might be difficult to file your income tax returns, pay back taxes, and handle other tax-related challenges. However, if you try to file or handle your tax difficulties independently, you may risk making costly blunders due to your limited understanding of tax. If you want to receive clear guidance and make important decisions, speaking with an experienced tax law expert is vital.