Below are five things to consider if you need to file an extension to file your 2018 income tax return.
It’s OK. There is no shame in needing some extra time to file your returns. Millions of Americans do it every year for a variety of reasons. Maybe your return was more complicated than usual or you have had special circumstances that made it difficult or impossible to meet the April 15 deadline. No worries. If you choose to file an extension, the IRS will give you until October 15th to submit your return.
Taxes are still due on April 15th. An extension to file is not the same as an extension to pay. Whatever tax you owe is still due by the April deadline. Failure to pay at least 80% of your 2018 tax bill on time will result in additional penalties and interest that will continue to accrue each month until your taxes are fully paid.
2018 IRA contributions are due by April 15th. The IRS allows taxpayers to contribute to their IRAs for the previous tax year up until they file their returns or the tax filing deadline, whichever comes first. This means you may contribute to an IRA in April of 2019 and count the contribution for 2018.
If you file an extension, your IRA contribution still needs to be made by the April deadline, not your new extended deadline. Moral of the story: get your 2018 IRA contributions in now, even if you plan to file your return after April 15th.
SEP-IRAs are different. If you have self-employment income or own a business with a retirement plan, you may have until you actually file your tax return to make your previous year’s SEP contribution. Unlike traditional and Roth IRAs, filing an extension to file your tax return gives you a little more time to fund your SEP-IRA.
In fact, this often presents an opportunity for self-employed people and small business owners to contribute more to their retirement plan while reducing your taxable income. For example, a self-employed realtor who expects a large commission check in May could submit an extension to file their tax return, giving them until October 15th (or whenever they file their 2018 return, if sooner) to come up with the extra cash to fund their SEP-IRA.
Perennially filing an extension can hint at bigger problems. There is no shame in needing some extra time to submit your return. However, if you struggle to complete your return on time every year it could be a hint that something is not quite right with your personal finances.
Maybe your financial system isn’t as organized as it should be or you have trouble managing cash flow so that you can pay your taxes and fund your retirement plans on time. This happens to the best of us, especially self-employed people who have other skillsets like sales, marketing, product development, anything but taxes.
Make 2019 the year you finally hire a professional accountant or tax preparer to help you with your return. Not only will you benefit from having a professional complete your tax return, but you will be more organized, less stressed, have more time for the things you do best, and (I would argue) be less at risk for an audit or other tax problems down the road.
Still planning to file for an extension? Click here to go to the IRS website for more information and to download the appropriate tax forms.