For freelancers, asking for an extension isn’t unheard of. Most of us have had times when we had to reach out to the project manager and ask for a few extra days. The same thing can happen when it comes to tax day.
April 15 (or the date closest to it if it falls on a weekend or holiday) is the official for filing taxes in the United States. Even those of us who make quarterly estimated tax payments as self-employed freelancers still face the filing deadline that every American faces each spring. So what if you’re approaching the deadline and see you won’t be able to file on time? It’s not the end of the world.
Filing for an Extension on your Taxes
The simple answer to the question “what if I can’t file yet?” is to file for an extension with the IRS. It’s just a matter of filing Form 4868: Application for Automatic Extension of Time. The form can be found on the IRS website. You can also use tax software programs, as many have the option of walking you through filing Form 4868, or your accountant can file it for you.
There are plenty of good reasons to file for an extension:
· Waiting on forms. Filing for an extension gives you six months to get your tax forms in order, as the next deadline is October 15 (or the date closest to it if it falls on a weekend or holiday). Forms that report income, such as W-2s, 1099s have a January 31 deadline to be sent to individuals; however, some forms come later. For example, the Schedule K-1 forms that report earnings from investment in a partnership aren’t due to investors until March 15. Depending on the speed of the mail system, these forms could arrive too late to file on time.
· Missing a receipt or documentation. If you’ve procrastinated in getting your paperwork together and realize at the last minute you’re missing receipts or need time to track down documentation, filing for an extension gives you the additional time you need to submit a complete, accurate tax form.
· Unexpected life events. Things happen in life that are out of our control, even for organized people. A death in the family, major illness, or going through a divorce can take up a lot of time and energy. When life takes priority over taxes, it’s nice to have the six-month extension to fall back on.
Make that Payment!
It’s imperative to remember that filing for an extension only allows more time to file the paperwork. You’re still expected to pay the taxes you owe by the April 15 deadline. You face paying an additional 3% interest on whatever tax you owe, plus potential late-payment penalties if you don’t. Sometimes penalties can be excused if you have reasonable cause, including a family death or significant illness, but that is rare.
If you’ve decided to file for an extension, you’ll need to get a reasonable estimate of what you owe in April. There are plenty of resources on the Self-Employed Individuals Tax Center page of the IRS website to help guide you. The good news is that you avoid the failure-to-pay penalty by paying toward your taxes, which is 5% of the unpaid balance each month.
Even if you don’t have the cash on hand to pay your taxes, there are ways to ease the burden. You might choose a low-interest rate loan or set up a payment plan with the IRS to ease the burden in April.
The Bottom Line:
If you fall behind on your paperwork or if life simply gets in the way, don’t panic. If you file an extension, you have until October to get everything together to submit a complete, accurate tax account for the previous year. Just make sure to send in the payment to avoid additional fees.