Here we are.
Tax Day is imminent. And you’re not ready to file. It’s something that happens even to the best of us. I know I’ve been there. Maybe you’re missing an important document. Perhaps you’ve misplaced a receipt. No matter the problem, the reality is that you just are not ready to file taxes.
So, what do you do?
The good news is that Tax Day isn’t exactly set in stone. There is a way around it.
File an Extension
If you know you are not ready to file taxes, you can file an extension. This allows you another six months to get your documents together and complete your tax return.
In order to file an extension, you need to use Form 4868.
It’s usually a good idea to file an extension if you are concerned about the rush to fill out the forms. The reality of the situation is that it’s better to file an extension and take the time to get it right than it is to make a mistake and have to file an amended return.
Filing an amended return takes much more time, and it can only be done through snail mail. An extension buys you a little more time and you can file electronically. Plus, it means you can go through the return and your documentation and ensure accuracy.
The more time you take, the less likely you are to make mistakes that will cost you more in the long run.
You Still Need an Idea of What You Owe
Unfortunately, filing an extension doesn’t let you off the hook when it comes to paying your bill. If you owe the IRS money, you’re still expected to pay.
Even if you are not ready to file taxes, the IRS wants its cut. That’s why, on the form, you’re asked to estimate what you think you owe. Then the IRS expects you to pay it.
It’s disappointing that you will have to pay up, but it’s still better than filing a mistake-riddled return. And it’s much, much better than skipping the filing altogether.
When you skip filing altogether, you run the risk of bigger penalties. It’s much better to file an extension, pay what you think you owe, and then file a more accurate return later. If you need to pay more, or if you are entitled to a refund, you’ll have to take care of that later.
However, you should err on the side of overpaying. The IRS doesn’t look kindly on you when you short-change them in any way, shape, or form.
What if You Can’t Pay Your Bill?
It’s really stressful to have a tax bill hanging over your head — especially if you can’t pay. There is nothing more demoralizing.
However, the IRS doesn’t really care if you can’t pay or not. Or rather, the IRS does care. They want to make sure they get their money.
One thing you can do if you can’t pay your bill is set up a payment plan with the IRS.
The IRS does charge fees when you set up a payment plan, but it’s better than some of the alternatives. Any fee you pay for a payment plan will be less than accrued penalties and interest if you skip out on your payment because you can’t pay and you are not ready to file taxes.
On top of that, the fee is often lower than what you would pay if you put the money on a credit card or got another loan. You can shop around to see what interest rates you can get and then borrow the money to pay your taxes, but you’re probably better off just going with the payment plan.
Unless you can get a 0% APR intro offer, and pay off the balance before the intro rate ends, you are probably better off just setting up the payment plan and doing what you can in that way.
Can You File Another Extension?
Once you’ve managed to file your extension, and you’ve made your expected tax payment, it’s time to get down to work. This is because in most cases, you aren’t going to get a second extension.
Do what you can to get the most accurate information possible to complete your tax return by the October deadline. If you don’t manage to get it done, you could be subject to more fees and penalties. And that’s never a good thing.
Prevent This from Happening Again
Of course, when you’re in this situation, you want to make sure it doesn’t happen again. It’s stressful to be in a position where you’re always playing catch up and not ready to file taxes.
In order to keep from getting in this position, it can help to have a plan — and put it into place now. Tax season should be a year-round thing for you. Staying on top of your taxes all year can help you (and your budget) in the long run.
First of all, year-round tax planning helps you stay on top of deductions and credits. That way you can smooth your case flow throughout the year. Plus, when you aren’t rushed, you’re more likely to pay attention to what’s available to you.
As you go through the year, keep all your tax documents together. You can do this by using a file folder on your desk. If you want to go digital, take the time organize your email inbox. I have labels related to taxes that I can use to keep track of business expenses and charitable donations made online. You can also set up an encrypted file on your computer or use an app like Shoeboxed to help you manage your tax documents and information all year long.
With this information set up and available, all you have to do is gather it up and hand it off to the accountant at tax time. It’s the perfect way to reduce your stress level and to keep your accountant from seeing you as a “problem” client.
In an ideal world, you’re always ready to file your taxes on time. (And, of course, in an ideal world, the government owes you money, rather than the other way around.)
However, there are times when you’re just not ready to file taxes. When that happens, it helps to know your options. Go ahead and file that extension. Gather what you need, and work on putting together as accurate a tax return as possible.
Don’t forget to send the IRS payment for taxes you think you might owe. Even if you haven’t completely finished your tax return, your accountant or some software can help you get a pretty good idea of what you owe so you can make a payment.
Just don’t neglect to file at all. If you don’t file, and you don’t meet the exemptions, the penalty can be pretty brutal. File an extension, and then go from there.