3 Last-Minute Income Tax Strategies

Photo credit: Lendingmemo

Photo credit: Lendingmemo

Scrambling as we approach April 18th? Here are three last-minute tax strategies to harness for proper management of the deadline.

If you need additional time to file your personal income tax return, file an extension:

The deadline to file your tax return is April 18, 2016 (April 19, 2016, if you live in Maine or Massachusetts).

If you cannot file your return on time, apply by the due date of the return for an extension.  You can receive an automatic six-month extension for your personal income tax return if you file Form 4868 by the tax filing deadline.  (If you are mailing the extension, you should mail it certified with a return receipt, so that you have proof of the mailing date.) The extension gives you until October 17, 2016 to file your 2015 return.

This extension is for filing only and does not allow you more time, without penalty, to pay your tax liability for 2015.  Although the extension will be allowed without payment, you will be subject to interest charges and possible late payment penalties on 2015 taxes not paid by April 18th (or April 19th in Maine or Massachusetts).

If the amount paid with Form 4868, plus withholding and estimated tax payments for 2015, are less than 90% of the amount due, you will be subject to a late payment penalty (one-half of 1% of the unpaid tax per month).

If you are out of the country on the tax filing due date:

You do not get an automatic extension for filing your tax return due to being out of the country on the filing due date.

The only exceptions are for US citizens and US residents who live and have their main place of business outside of the US, and for military personnel stationed outside the US.  If you qualify, you will be allowed an automatic, two-month extension until June 15, 2016, without the need to request it.  However, interest will be payable from the original April 18th/19th due date on any unpaid taxes.  If you cannot file within this two-month period, you should get an additional four-month extension by filing form 4868 by June 15, 2016.  Also, a late payment penalty may be imposed on any tax liability not paid by June 15, 2016.

Extension of time to file returns other than personal income tax returns:

An estate or trust, which has a due date of April 18th/April 19th, can apply for an automatic five-month extension, using Form 7004 (until September 15, 2016).

A private foundation has a filing due date of May 15, 2016 and can apply for an automatic three-month extension, using Form 8868 (until August 15, 2016). It can also file for an additional three-month extension if it provides an adequate explanation why the return cannot be filed by the extended due date.  The IRS will evaluate the application based on the organization’s efforts to fulfill the filing requirements, rather than on the convenience of their tax professional.  The IRS instructions provide that, if the foundation’s tax professional is unable to complete the return by the due date for reasons beyond its control, such as the financial statements or books and records require further review and analysis, the IRS will generally grant the additional three-month extension.