Not Ready to File Your Tax Return? Don’t Fear an Extension

May 13, 2021, 8:46 AM

With a few days to go before Tax Day, I am not ashamed to admit that I’ll be filing for an extension. I’m also not alone. As of April 30, 2021, the IRS had received 121,168,000 individual tax returns, down 3.4% from the same time last year.

I realize that those numbers aren’t precisely apples to apples since the deadline was a month later in 2020. But checking the figures two weeks out from that June 15, 2020, deadline shows an even wider gap. Over 133,811,000 returns had been filed by the week ending May 29, 2020, a 9.5% dip.

Typically, the late-May filing season statistics represent approximately 90% of returns for the calendar year. That means, on average, about 10% of taxpayers file for an extension. That percentage looks to tick higher in 2021.

Many taxpayers hesitate to file for an extension because of the suggestion that it looks bad—or a fear that the IRS will punish them. Not only is that not true, but I’d always advise filing a complete and correct return on extension than getting a flawed and rushed return in by the original due date.

Here’s what you need to know.

Filing for an extension is easy

If you need more time—like me—and you don’t meet an exception, you will need to file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.

An extension generally allows you an additional six months to get your return to the IRS and not be subject to the late-filing penalty from the original filing date. However, this year, as in 2020, an extension does not start the clock running on the postponed due date, but on the original Tax Day of April 15. In 2021, that means an extension will give you until Oct.15, 2021, to file your return.

The IRS understands that there are legitimate reasons why taxpayers may need more time to file—and they don’t care what they might be. When you file for an extension, you don’t need to tell anyone why you’re making the request.

However, this isn’t a completely free pass: An extension is an extension of the time to file, but not more time to pay. If you expect to owe tax and you’re filing for an extension, you should make a payment with your extension request to avoid additional interest and penalty.

To file for an extension, mail Form 4868 to the IRS by the deadline, or file using software, including Free File on IRS.gov: You can use Free File to e-file an extension for free even if you don’t otherwise qualify to use the software.

You can also get an extension by paying all or part of your estimated income tax due with Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card. If you appropriately note that it’s an extension payment, you won’t have to file Form 4868.

Some taxpayers get more time automatically

Taxpayers affected by severe storms in 2021—including those who live in parts of Alabama, Kentucky, Louisiana, Oklahoma, and Texas—may have extra time. For details, check out the IRS disaster relief page.

Taxpayers who live outside of the U.S. may receive an automatic two-month extension to file and pay federal income tax. To qualify, you must be a U.S. citizen or resident alien living outside the U.S. and Puerto Rico on the normal tax filing deadline and your main place of business or post of duty is normally outside the U.S. and Puerto Rico, or you are in military service outside of the country. While the extension is automatic, be sure to attach a statement explaining how you qualified when you submit your return.

If you live out of the country and still need time before the two-month extension, you can generally get an additional four months to file your return—a total of six months—by filing Form 4868. You must make the request before the initial two-month period ends. Unlike the original two-month extension, the additional four months is not an extension of time to pay.

Taxpayers who are out of the country can request even more time if needed. Unlike an automatic extension, the additional two-month extension is at the discretion of the IRS, which means that you must offer a reason. If your request is granted, you would have until December 15 to file.

You can get even more time to file if you live outside the U.S. and meet the criteria. This typically applies to taxpayers who need more time to qualify for tax breaks like the foreign earned income exclusion. This can be tricky, so it’s advisable to consult with a tax professional in advance if you think you might need the extra time.

Members of the U.S. Armed Forces who perform military service either in a combat zone or service in direct support of military operations in a combat zone can tack on an extra 180 days after the last day in the combat zone—plus additional time. The deadline is extended by the number of days left before the filing deadline when entering the combat zone. For example, if you entered the combat zone five days before the filing deadline, you’d have 185 extra days, total. And unlike with Form 4868, the extension applies to filing and paying your federal income taxes.

Statute of limitations may be extended

Don’t be fooled into believing that you’re shortening the time for the IRS to challenge your return. Under Section 6501(a), the statute of limitations begins to run on the original due date or the day you file your taxes—whichever is later. The same is generally true—under Section 6511—for refund claims, with some exceptions.

Extra time to fund—or fix—tax-favored accounts

Taxpayers only have until May 17, 2021, to make contributions to individual retirement arrangements (IRAs), Roth IRAs, health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs)—even if they file for an extension. But self-employed persons have the opportunity to fund SEP and SIMPLE IRAs, and solo 401(k) plans through the deadline for a timely filed extension.

All taxpayers who contributed to an IRA in 2020 can withdraw those contributions tax-free by the due date of the tax return. But if you have an extension—and you otherwise meet the criteria—you can also withdraw those contributions tax-free before the extended due date. The same is true for excess contributions.

Don’t forget to follow-up

Once you file Form 4868, don’t assume you’re done. You may still need to file a separate extension request with your state and local tax authorities.

And, of course, don’t forget to use the extra time to pull your tax return together. Your extended tax deadline will be here before you know it!

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To contact the reporter on this story: Kelly Phillips Erb in Washington at kerb@bloombergindustry.com

To contact the editors responsible for this story: Rachael Daigle at rdaigle@bloombergindustry.com; Yuri Nagano at ynagano@bloombergtax.com

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