How about a Little Extension on the April 15 Deadline to File Taxes
With the April 15 deadline bearing down hard on you, what would it be like to just turn around and skip it? You wouldn't be alone you know - more than 10 million people do it every year, and it especially goes down well with the IRS if you have a very complex tax return to file. For instance, if you happen to be one of those people converting their IRA to the tax-free Roth IRA , you could certainly appreciate it if the IRS cut you a little slack getting all those procedures in place. And the same goes for people who have just bought a house, but now wish to be allowed to wait before they file taxes so that they can take advantage of federal tax credits for home buyers.
The whole time extension deal was simplified and made approachable just a couple of years ago. And now, all taxpayers can, if they want, fill out a Form 4868 by April 15, and can be granted an extension of six months. Of course as you must've sensed, things can't be that easy. You do gain a $8000 tax break on an extension, but that is not an extension granted so you can relax another six months. Whatever it is that you believe you will need to pay given a six-month extension, you do have to file taxes to that effect. And if you discover that you underpaid, they can either charge you interest, or fine you.
It does seem rather unbelievable, but what if you paid more than you needed to have? Of course, if they pay you interest, it couldn't be too shabby; or rather, they pay you interest when they come around to it a month and a half on, after you file your overpaid return. What do the experts say is the best thing to do? Popular opinion among expert circles says that filing for an extension gives you the most wiggle room, and the best benefits, even if it means getting a refund takes that much longer. It is preferable considering the other choice: filing right on time on April 15, and then making changes in an amended filing afterwards. An amended return is actually an invitation to be audited. It doesn't hurt anybody waiting until they are ready with all the necessary documents, before they file.
The government just extended the law in November, that people buying their first home will get an $8000 tax break through this year as well, and if you are buying your second or third home, you get $6500. You get your tax break, by putting this back in on your tax return. If the home purchase deal goes through only by 1 July though, you can get an extension. How about those who are getting their Roth IRA conversions? Getting extensions works for them too. Here is a little tip on how experienced investors go about it. Experienced investors go and set up more than one Roth conversion account first thing in January, and open a separate account for each kind of asset. They don't wait until October 15 the year after to see how their investments worked out. If any of those conversions didn't do so well, they'll just go and reverse them. Think about it - if you invest something worth $40,000 in a Roth, and before your time is up, it's worth no more than $20,000 - wouldn't you be better off reversing it, instead of paying taxes on the $40,000?
There is however, one kind of taxpayer who probably shouldn't wait too long on an extension. It is people who have offshore accounts. If you don't do that by the end of June, the IRS usually throws a fit.
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