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Congressional Democrats have been talking about providing an extension to the April 15 deadline for filing your tax return. The rules under the new Tax Cuts and Jobs Act and the five-week government shutdown earlier this year are good enough reasons for granting some extra time to taxpayers this year.
Just don't count on it.
If you're going to have trouble filing your return by the deadline, get a six-month extension until Oct. 15.
IRS Form 4868 is a one-page document that will take about five minutes to fill out. You can send it by mail to one of the addresses provided by the IRS on its website at irs.gov or you can file it electronically through the agency's electronic filing system, your own tax software provider or through your tax preparer. But file it.
"Just by filing for the extension before April 15, you can avoid potential penalties," said Mark Jaeger, director of tax development at tax software provider TaxAct. "It's a pretty straightforward process."
The extension does not absolve taxpayers from the responsibility to pay any taxes they might owe by the April 15 deadline (Maine, Massachusetts and D.C. are slightly later). The key thing that taxpayers have to do to qualify for the extension is to estimate their tax liability for 2018 and, if they owe anything, pay at least some of it.
Two penalties can apply for those who fail to file their returns by the deadline. The first is the late filing penalty. It amounts to 5 percent of the tax owed per month up to a maximum of 25 percent of the balance owed. The minimum penalty charged is the lesser of $105 or 100 percent of the tax owed. Filing for the extension will get you off the hook for that penalty as long as you meet the extended filing deadline.
The second potential penalty is for underpayment of taxes owed. It is a monthly charge of between 0.5 and 1 percent of the tax owed up to a maximum of 25 percent of the tax owed. As part of the extension application, taxpayers have to estimate what taxes they owe and make a payment along with the extension. If you expect a refund or if you don't expect to owe more than $1,000, you won't be charged an underpayment penalty. You should at least pay what you owed in the previous year, even if you're unsure of your tax liability for 2018.
"If you had a $3,000 tax liability in the previous year and paid $1,500 in withholding taxes last year, you need to pay at least $1,500 along with your extension to avoid an underpayment penalty," said Jaeger.
For many taxpayers — most notably, small business owners and shareholders in a business partnership or S Corp. — tax returns are more complicated this year. There are new deductions and different rules for expenses such as depreciation to contend with, not to mention the usual effort required to assemble K-1 income forms and receipts for business expenses. In a regular year, only about 50 percent of such taxpayers file their returns by the deadline.
This year, the proportion could be higher. Whatever your reasons for not being able to file a return on time, do yourself a favor and get the extension.