It is hard to believe that it’s April and tax returns are due within two weeks. Most people have already completed their returns and thus, no problem. However, for people who have not yet completed their returns, time is ticking. In that regard, you have two options to consider.
The first option is to complete and submit your return on or before April 18.
This year because of the holiday, we have a little extra grace period to file our returns. Therefore, you still have a couple weeks to complete your return. However, if you generally have a professional do your return, they may not be able to have the return completed and available for you to review before the April 18 deadline. If that is the case, or if for some reason you just don’t have the time to complete your return by April 18, then your only other option is to file for an extension.
An extension to file your tax return, whether federal or state, is simple and automatic. To extend your return for the Internal Revenue Service, all you need to do is complete Form 4868. You do not have to give a reason for the extension and it doesn’t have to be approved by the IRS. It is automatic. The extension gives you an additional six months to complete your return. Therefore, if you find for whatever reason you are not going to have your return completed by April 18, the proper course of action is to file for an extension.
Although extensions are automatic, it is important to keep in mind that the extension is for additional time to file your return, not to pay your taxes. Your taxes are still due by April 18. Therefore, even if you are going to do an extension, you must guesstimate your tax situation to determine if you’re going to get a refund or if you’re going to owe. If you find that you are going to get a refund, all you need to do is file Form 4868. On the other hand, if you find you are going to owe money, you want to pay that additional liability with Form 4868.
With regard to the State of Michigan, your federal extension will automatically apply to the State of Michigan. Therefore, if you file Form 4868 with the federal government and you expect a refund, there is nothing you need to do with regard to the State of Michigan. On the other hand, if you find you will owe the State of Michigan money, then once again, you want to make an estimated payment to the State of Michigan.
Whenever I recommend an extension to someone they almost always question me about whether an extension will raise their audit risk. The answer is a resounding no. There’s no evidence whatsoever that filing an extension will increase your audit risk. What typically increases audit risk is returns that have mathematical errors, failure to report income or general sloppiness. What all too often happens is people rush to meet the tax deadline and thus, they make mistakes on their returns and that is what causes problems. You would be much further ahead to file an extension and then make sure your return is accurate.
One last note, remember now is a good time to start thinking about tax planning for 2016.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at email@example.com.