A Guide to Tax Extensions: What Are They and Who Benefits from Them?

The deadline to submit your taxes this year is April 17^th.

Or is it?

You can request an extension on your taxes if you are unable to submit them by the April deadline. If you receive an extension, you’ll have until October 15^th to file your returns.

While an extension on your taxes might seem like a good idea, if you’re not waiting for additional documentation or have a serious hardship preventing you from completing your return, you’re just making yourself wait longer to receive your hard-earned tax refund money.

So, is filing for an extension the right move for you? Read on to find out.

Tax extension basics

You can apply for a federal tax extension for any reason. It’s easy, and you’re eligible for a free tax extension if your adjusted gross income is under $66,000. The IRS provides details for online tax preparation services where you can submit your form.

It’s important to know that this six-month extension is a grace period to allow you more time to prepare your return, not to pay any money owed. If you are a single person with income under $66,000 and are not a partner in or beneficiary of any corporations, aim to have your returns prepared by the April deadline to receive your refund money quickly.

When it comes to state extensions, you may need to submit an additional form, as not all states accept the IRS’ Form 4868.

When a tax extension can help

There are certain circumstances in which a tax extension makes sense. Typically, you need more documents, or something will prevent you from having your returns adequately prepared in the next few months. These are the most common reasons people will file a tax extension:

You need extra time to verify information: If you’re feeling overwhelmed trying to get all of your information together, you don’t want to risk inaccuracies or errors on your tax return. Instead, the window that an extension offers may relieve some of your worries—and if you do finish by the April deadline, you can still submit your taxes then.

You’re waiting for paperwork: Any employer-generated paperwork should be in your hands by the deadline of January 31^st—so if you haven’t received yours, you need to follow up with your employer directly to sort out any potential address errors. However, other forms of paperwork, like a Schedule K-1 if you hold shares in a partnership, sometimes can’t be sent until information is gathered from all relevant parties. If that form can’t be prepared before May, you’ll need an extension to file your personal return.

April is almost here, and you don’t think you’ll make it: If it’s approaching the April deadline and you’re not sure that your taxes will be ready in time, it’s better to file for an extension just in case. Should you not file your return by April 17^th and you didn’t request an extension, you could be liable for penalties as much as 25% of the taxes you owe. Keep in mind that if you do file for an extension and then miss the October deadline, you’ll also be hit with these penalties.

You want to take advantage of tax law changes: Given recent and ongoing legislation related to tax law changes, filing for an extension may allow you to claim any retroactive benefits that could change after April’s filing deadline.

You’re experiencing a hardship or significant life event: If you’re dealing with a loss in the family or experiencing any other major life event that takes your attention away from taxes, filing for an extension will allow you to deal with your situation without the burden of preparing taxes.

When a tax extension could hurt more than help

On the other hand, there are situations where applying for an extension may end up working against you:

You don’t get more time to pay: When you get a tax extension, the IRS is allowing you to submit your return later than the due date. This does not mean that you get an extension on any taxes you owe. If you don’t pay your taxes due by April 17^th, you’ll end up with a late charge even if you were granted an extension.

Your refund will be held: If you’re owed money for the year, you can’t receive any refund until your return has been processed.

A final word on tax extensions

Under the right circumstances, a tax extension can help you accurately and completely prepare your taxes. However, because you have to pay what you owe by the April tax deadline, it is not a way to give yourself more time before you part with your money.

Besides, completing your return by the April deadline is the best way to guarantee you receive your expected refund as fast as possible. With the Green Dot 5% Cash Back Visa^® Debit Card (check out their simple fees here) you can have your funds directly deposited into your account so that you won’t have to wait for a paper check to be cut and sent to you in the mail. Plus, if you use your Green Dot card to direct deposit your tax return by the April deadline, you’ll be enrolled for a chance to win one of over 4,000 prizes in Green Dot’s Tax Time Giveaway! No purchase necessary. See official rules.

 

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