5 Tips for Filing a Tax Extension

Individual taxpayers who expect to miss the April 15,2008 due date must file for a tax extension with the IRS. The IRS grants a six-month extension - you will get until October 15, 2008 to file your federal taxes for year 2007. State governments also have their own forms to request an extension.

My company changed hands 2007. After a turbulent change in leadership, the new owner took charge of office in early 2007. We were issued W-2s by the end of the month. But many of us employees found a some errors in our W-2s. Some expenses that were supposed to be reimbursements had been treated as a part of our wages. It was a long drawn battle for us to get the management to see the errors and have them fix the problem. It was late March 2008 by the time I got my corrected W-2. It did not leave me enough time to file my returns by the deadline. So, like many of my colleagues, I filed for an extension. Here are few tips I learned from the process.

* File form 4868 by April 15 to request an extension. You can use paper forms or file electronically through many companies like TurboTax, TaxExtension.com, etc. for a small fee.

* Although IRS gives you more time to file, they expect you to pay your taxes for 2007 by April 15, 2008. If you pass this deadline, you will owe IRS a penalty and interest on the taxes owed. To avoid this, prepare a draft of your returns and estimate the amount you owe. Do not forget any source of your income - include your estimate of wages, interests, dividends, rental/business income, etc. If you are not sure about your income/deductions, err on the safer side - pay up in excess to IRS to avoid penalties. I overestimated my payments when I filed for an extension last year. The excess amount will be refunded or treated as a payment towards your 2008 returns. You can pay your estimated taxes with a check, money order, electronic funds withdrawal, or credit card. You can also pay by phone. Form 4858 lists the instructions and phone numbers for your reference.

* If you are short of money, filing an extension does not help because the extension does not buy you time to pay your taxes. So avoid the extra paperwork for extension and pay with a credit card or set up an payment plan to pay your taxes in installments. Using the credit card costs a convenience fee of 2.5%. The payment plan option involves paying $52 to open an account and an additional 10% in interest on the taxes owed.

* Many states also have the same deadline as the IRS and usually grant a six-month extension. Check with the requirements for your state to ensure that you do not miss your payment/filing deadlines. Most states also require you to pay up the taxes you owe by April 15, 2008. Avoid interest charge and penalties by paying by this deadline.

* This year the government will send rebate checks as part of an economic stimulus package to 130 million qualifying households. Filing an extension will delay your rebate - even you file for an extension, send your returns as soon as can to get your rebate. People filing returns only to receive the economic stimulus rebate are not required to file by April 15, 2008, nor do they have to file Form 4868 for an extension.