Wednesday, April 13, 2011


Individual tax returns (Form 1040) are due Monday, April 18th. Returns postmarked after this date, unless properly extended, incur a failure-to-file penalty on the balance due of 5% per month (to a maximum of 25%). Additionally, there are also failure-to-pay penalties and interest charges as well.

You can file for an automatic six-month extension by filing Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) on or before the April 18th filing deadline.

The instructions for filing a Form 4868 require taxpayers to:
  • Properly estimate their tax liability using the information available to them;
  • Enter their total tax liability on line 4 of Form 4868; and
  • File Form 4868 by the regular due date of their return.
Normally, filing this form results in an automatic six-month extension of time to file without any late-filing penalty. However, filing this form does not extend time to pay any income tax liability due.

Some people have the misconception that the filed extension also applies to extending the time when taxes are due. This is not true and you should note that balances due in excess of 10% of the total tax shown on the return will incur penalties and interest for underpayment.

One thing to note is the requirement to "properly estimate" the tax liability. It is possible for the IRS to invalidate an improper extension (one that didn't estimate the tax liability) exposing the taxpayer to substantial failure-to-file penalties. This isn't something I've seen a lot of but given the need for additional revenues and computer sophistication, it easy to imagine this becoming more prevalent.

Accordingly, my advice is to make sure you spend a little time properly estimating your tax liability before sending off your extension. It is risky to just put down zeros when you know you owe taxes.

And as a final note, don't forget to properly extend any state and/or local returns as well. Some will accept the federal extension and some won't. You need to check their specific rules. As with the federal government, the extensions to file do not extend the time to pay any taxes due.