Can't Get Your Tax Return In on Time? Don't Fret

It's April 15, tax filing day. Are you ready? If you need more time, you have to file a request for an extension. In this column, "Early Show" financial adviser Ray Martin walks you through the way to do it, why to, and what it does and doesn't entitle you to.

Getting More Time to File Your Return: A User Guide

I haven't even gotten started on my 2009 tax return. Needless to say, I'll be filing an extension instead of rushing to finish and file my 2009 tax return by the end of the day today.

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. The requests are autmatially granted. If you don't file a tax return or at least an extension request, then you'll owe Internal Revenue Service penalties and interest.

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The penalty for not filing your tax return or an extension is a stiff 5 percent per month up to a maximum of 25 percent of the amount of tax due on the late-filed return. Remember, you'll also need to file an extension for your state tax return, as well.

Here's the deal; filing an extension gives you an automatic 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 need to also make a reasonable estimate of taxes you owe and submit a payment with the Form 4868. To avoid a late payment penalty, you have to have paid (from withholding, estimated tax payments and what you pay with the extension) at least 90 percent of what you estimate you owe, or pay 100 percent of your 2008 tax liability. 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 four percent, so it's not that big a deal.

Filing for an extension is free. For your federal income tax return, you can log onto the IRS Web site and use the free file service on that site. Again, you'll need to do the same for your state tax return, and most states will have this feature available on their Web sites.

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

It's a good idea to file an extension, especially if you need more time to do a thorough job preparing a tax return - particularly if you had to deal with a lot of new tax issues in 2009.

Here are a few reasons filing an extension is a good idea:

• With so many new tax credits available (Making Work Pay, Vehicle Sales Tax Deductions, American Opportunity Credit, tax credits for Energy Saving Home Improvements, etc.), you'll want more time to do your research and make sure you are taking advantage of every credit you qualify for.

• To give your tax preparer some breathing room. If her or she is really bogged down, ask him to her to file an extension now. This will give her or him more time to finish your return, later when she or he can give it his or her full attention and do a more thorough job.

• Many financial institutions are still sending corrected forms 1099 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.

There are some circumstances, though, in which filing for an extension isn't necessarily the way to go.

If you know you are getting a tax refund, scramble and e-file or mail it from the post office today. You can have a tax professional review it later if you want to make sure you didn't miss out on any tax credits or if you find out about some that you didn't know about. Generally, you have up to three years to file a 1040X, which is an amended tax return. That's three years of your original filing date, including any filing extensions.

If you do get a refund, here are some suggestions on what to do with the money:

The IRS reports that, as of April 2, the average refund was $2,950, about $255 more than last year. I recommend that you use your refund to pay down on high interest rate debt, make retirement plan contributions, and invest in your education. In the current job environment, it's a good idea to invest in learning new skills to keep you marketable.