How (and When) to File for a Tax Extension

Last Updated Apr 5, 2010 5:01 PM EDT

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Unfortunately, I haven't even gotten started on my 2009 tax return. Needless to say, I'll be filing for an extension instead of rushing to finish and file my 2009 tax return by April 15th.

If you're in a similar situation, and need more time to get your taxes done right, then file a Form 4868, Application for Automatic Extension for Time to File U.S. Individual Income Tax Returns. If you don't file a tax return or at least an extension by April 15th, then you'll owe IRS penalties and interest (see my post last week for more on your options if you can't pay what you owe now). And remember, you'll also need to file an extension for your state tax return as well.

Filing an extension gives you an additional six months -- until October 15th, 2010 -- to file your final 2009 tax return. But it does NOT give you an extension to pay the taxes you owe. You'll still need to calculate a reasonable estimate of taxes owed and submit a payment with Form 4868. And you'll have to pay at least 90 percent of what you think you owe to avoid any late payment penalty. If you want to avoid paying any additional interest for paying late, you have to pay the full amount of the tax liability owed. The current IRS interest rate for late payments is 4 percent, however, so it's not necessarily a big deal.

Particularly if you need more time to do a thorough job preparing your tax return, filing an extension can be a good idea. This is especially true if you had to deal with a lot of new tax issues in 2009. And if your tax preparer is really bogged down, ask him to file an extension now. This will give his time to finish your return later when he can give it his full attention and do a more thorough job.

Another reason to file an extension is that many financial institutions are still sending corrected form 1099s with revised amounts for qualified dividends and foreign taxes. Taxpayers with investment income may want to file an extension if they typically receive a corrected form 1099.

And don't worry -- filing for an extension does not make your return any more likely to be the target of an IRS audit.

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  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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