With the April 15^th tax deadline quickly approaching, millions of Americans are stressed about getting their taxes filed on time and paying Uncle Sam any tax balance due.  What taxpayers aren’t aware of, however, is that filing a tax extension will not only get you 6 more months to file your taxes, but could also provide you with the cheapest loan around, directly from the IRS.

While the popularity of tax extensions is growing due to increased complexity in tax code and a tough economy, many misconceptions still surround extensions. For example, many believe an extension to file your taxes increases chances of audit. That’s not true. If anything, a tax extension lessens one’s chances of being audited.

The biggest misconception of them all, and least understood, is that filing for a tax extension will result in costly penalties and fines from the IRS – quite possibly exactly what the IRS and online tax preparation companies want you to believe… but reality is likely to surprise you.

It sickens me to see online tax companies using scare tactics to get people to file by April 15^th so they can get paid.  More than 15 million tax extensions are approved by the IRS annually, and there’s absolutely nothing wrong with asking for more time to file or pay for your taxes. Heck, I do it every year.

Here are the facts. There are three potential finance penalties associated with not paying your taxes:

1. Late Filing Penalty. If you do nothing – you don’t file either your taxes or an extension by midnight of April 15^th - you will be assessed a late filing penalty. And this one hurts.  The penalty is 5% of your balance due per, month, or $50 for each $1,000 you owe.  However, simply filing a tax extension means no late filing penalty until October 15^th. Congratulations – one down and two to go.

2. Late Payment Penalty.  If you file your taxes or are approved for an extension and don’t pay your balance, you will likely be charged a late payment penalty which is ½ of 1 percent per month for the balance you owe.  This works out to be $5 per month for each $1,000 you owe the IRS… not bad.

3. IRS Interest. On top of the measly late payment penalty, you are also subject to paying the IRS interest on your late payment.  The IRS sets this interest rate on a quarterly basis, which has been 4% for the last 5 quarters.  Roughly calculated, you’ll need to pay another $3.33 for each month that you don’t pay the IRS on that same $1,000.

Here’s where the cheap loan comes in:  let’s assume you owe the IRS $1,000 in taxes this year and decide to file a tax extension and defer your tax payment until October 15^th, the extended tax deadline.  You will pay about $50 in penalties and interest on that  $1,000 loan over the course of 6 months – quite a bargain, actually!

One last word of caution: Never, ever put a tax balance on a credit card. You will first have to pay what is called a “convenience fee” that runs about 2.5% of your balance due ($25 for each $1,000 you owe), and credit card interest on top of that.  Over the same six month period where you’ll only have to come up with an extra $50 by filing an extension, you’ll be paying hundreds if you keep that balance on a credit card.

A fair warning to the corporate tax filers out there:

The 2010 corporate tax deadline is March 15, not March 16.

I have seen several websites  publicize March 16 as the deadline date (I won’t link to them because we all make mistakes). I think the reason why there might be confusion is because the 2009 corporate tax deadline was March 16. The reason why it was March 16 was because the 15th fell on a Sunday. This year March 15 is on a Monday…and that Monday is not a federal holiday.

By no means am I trying to rob anyone of an extra day to file their corporate taxes. I just want people to have the correct info.

If that actual date doesn’t make any difference and you’ll need more time anyway, remember that you have the option to file a corporate tax extension. You’ll get an extra 6 months to file your taxes.

Tax Extension Center continues its series of The Top 100 Reasons to File a Tax Extension. This series is intended to show taxpayers that a tax extension is valuable because it saves individuals and/or their businesses time, stress, and even money.

Today’s reason on our Top 100 list has to do with your chances of being audited. That word, audit, sends a chill down all of our spines when we hear it. The great news is that if you file a tax extension, the chances of you being audited are believed to be less than if you file your taxes on time.

No one outside the IRS knows for sure how the audit system really works, but many CPAs believe that tax extensions actually decrease your chances of getting an audit.

The theory is that IRS officers have an audit quota, and they start on it around tax time. Many accountants hypothesize that the quotas get filled well before the tax extension deadline of October 15 (September 15 for business taxes), and IRS agents have less incentive to put returns in the audit pile.

There is some discussion as to whether or not this is true, but filing a tax extension certainly won’t single you out for unfavorable treatment. Over 10 million (out of 140 million) taxpayers filed tax extensions last year. Half of all US corporations did as well.

Whether you are new to tax extensions or not, remember that filing a tax extension does not give you more time to pay what you owe the government or face the possibility of penalties and interest. You still need to make your payment by midnight on April 15.

Ever filed a tax extension before? Thinking about filing one this year? Drop me a note in the comment section below.

While you’re still getting used to the New Year (happy 2010 by the way), I thought I’d share a little interesting fact for you to ponder – there are only 100 days until your taxes are due on April 15.

I’m sorry to be the bearer of bad news. But I thought you should know.

Yes, that dreaded day of tax reckoning is going to be here before you know it. And if you’re like millions of Americans, it doesn’t matter if I remind you every day from now until the deadline. You’ll still need more time. That’s why more and more taxpayers (more than 9 million last year) file a tax extension to get an extra 6 months to file their taxes.

This post is the first in a new series that starts today. Over the next 100 days we’re going to count down the Top 100 Reasons to File a Tax Extension. In reality, there are countless reasons to file a tax extension for you or your business. This series is designed to show you that a tax extension makes sense because it will save you time, stress, and even money.

Today’s reason is simple – filing a tax extension is easy. You don’t need an accountant. You don’t need a lawyer. You just need a few minutes and some basic information about yourself like your social security number, your address, and an estimate of how much money you made last year. If you have all of that info, you’ll be well on your we to a new tax deadline of October 15.

Whether you are new to tax extensions or not, remember that filing a tax extension does not give you more time to pay what you owe the government or face the possibility of penalties and interest. You still need to make your payment by midnight on April 15.

Ever filed a tax extension before? Thinking about filing one this year? Drop me a note in the comment section below.

The super-talented FileLater Support Team let me know that they are back at work after a short Holiday break and that they’ve been getting a lot of questions in the last 72 hours like this:

When can I efile a tax extension for tax year 2009? Can I do it today?

First let me applaud all of you who are thinking so far ahead! Good for you. April 15 will be here before you know it.

Here’s the short answer: the earliest you can efile a tax extension is January 15.

Here’s the longer answer: if you want to efile a tax extension for yourself (Form 4868) or your business (Form 7004), the soonest you’ll be able to do so is January 15. That’s the day the IRS turns on its efile engine, if you will, to allow authorized efile providers to start sending them tax extension requests.

On the other side, the deadlines to file extension are as follows:

• You have until midnight on March 15 to file your business tax extension.
• You have until midnight on April 15 to file a personal tax extension.

Are you planning to file a tax extension this year? Have you filed one before? Share your tax extension experience with me in the comment section below.

So you’ve heard something about IRS Form 4868 (more commonly known as a tax extension), but you don’t know anything about it. The good news is that, compared to other tax forms, this one is pretty straight forward. The bad news is that it is still a tax form, so there are still ways to get confused. Hopefully this post will answer all of your questions.

Official Name for Form 4868
Application for Automatic Extension of Time To File U.S. Individual Income Tax Return

What’s the purpose of the form?
Form 4868 is used to apply for 6 more months (4 if  “out of the country” and a U.S. citizen or resident) to file Form 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.

How do I qualify for a tax extension?
This is way easier than you can even imagine. To get an extension, all you have to do is:

1. Properly estimate your 2008 tax liability using the information available to you,

2.  Enter your total tax liability on line 4 of Form 4868, and

3.  File Form 4868 by the regular due date of your return.

According to the IRS, although you are not required to make a payment of the tax you estimate as due, Form 4868 does not extend the time to pay taxes. If you do not pay the amount due by the regular due date, you will owe interest. You may also be charged penalties.

Here’s the best part: you do not have to explain why you are asking for the extension. The IRS will only contact you only if your request is denied.

Do not file Form 4868 if you want the IRS to figure your tax or you are under a court order to file your return by the regular due date.

When do I file a tax extension?
File Form 4868 by April 15. Those of you that are fiscal year taxpayers (and this is pretty rare) must file Form 4868 by the regular due date of the return.

What if I am out of the country on April 15?
If you are out of the country and a U.S. citizen or resident, you are allowed 2 extra months to file your return and pay any amount due without requesting an extension. For a calendar year return, this is June 15. File Form 4868 and be sure to check the box on line 8 if you need an additional 4 months to file your return.

If you are out of the country and a U.S. citizen or resident, you may qualify for special tax treatment if you meet the foreign residence or presence tests. If you do not expect to meet either of those tests by the due date of your return, request an extension to a date after you expect to qualify using Form 2350, Application for Extension of Time To File U.S. Income Tax Return.

You are out of the country if:

• You live outside the United States and Puerto Rico and your main place of work is outside the United States and Puerto Rico, or
• You are in military or naval service outside the United States and Puerto Rico.

If you qualify as being out of the country, you will still be eligible for the extension even if you are physically present in the United States or Puerto Rico on the regular due date of the return.

For more information on extensions for taxpayers out of the country, see Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

3 ways to request an automatic extension of time to file a U.S. individual income tax return.
1. You can file Form 4868 electronically by accessing IRS e-file using your home computer or by using a tax professional who uses e-file.

2. You can pay all or part of your estimate of income tax due using a credit card.

3. You can file a paper Form 4868.

What is e-file?
IRS e-file is the IRS’s electronic filing program. You can get an automatic extension of time to file your tax return by filing Form 4868 electronically. You will receive an electronic acknowledgment once you complete the transaction. Keep it with your records.

It’s only November, but already reasons to file a tax extension next year are rearing their head.

On November 6, a new law that went into effect that extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.

According to the IRS, The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.

But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

The IRS says that a new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

So this is all good news. You have more time to go out and take advantage of that tax credit. Second, don’t worry about filing your taxes in April while you get situated in your dream home. You can always file a tax extension and get an extra 6 months to file!

In a recent press release the IRS stressed a couple of points they want taxpayers to heed:

“The IRS encourages taxpayers to choose direct deposit when they file their returns because it puts an end to lost, stolen or undeliverable checks. Taxpayers can receive refunds directly into personal checking or savings accounts. Direct deposit is available for filers of both paper and electronic returns.

The IRS also encourages taxpayers to file their tax returns electronically because e-file eliminates the risk of lost paper returns. E-file also reduces errors on tax returns and speeds up refunds.”

In the same statement, the IRS went on to add, “E-file coupled with direct deposit is your best option; it’s easy, fast and safe.”

I’m in complete agreement. e-Filing is a no-brainer for so many reasons. And as I mentioned in my last post, more and more people are e-Filing these days.

Remember, e-Filing isn’t just for your 1040. You can e-File a tax extension as well.

With the October 15 deadline fast approaching, our support team has been busy answering one common question:

I don’t have time to finish my taxes by October 15, can I get an extension on my extension?

The answer is NO.

Unfortunately, the days of the second extension are over. The IRS only allows one 6-month extension to file form 1040.

Your only choice is to file your taxes. If your 1040 and money you owe the IRS is not filed on time, it may be subject to penalties and late fees.

If your problem is that you can’t possibly pay what you owe, I suggest you read the IRS’ recommendation on how to setup an Installment Agreement (otherwise known as a payment plan).

Between April 15 , the IRS income tax deadline, and October 15, the extended IRS income tax deadline, we often have customers ask if there is an advantage to filing income taxes now, or waiting until close to October 15. Here are few considerations to make as you decide if it’s time to get your 2008 taxes submitted:

If you expect to get a refund, the sooner you file the sooner you get your money. For those who expect to owe and have not made an estimated payment when their income tax extension was filed, the IRS is slowly but surely accumulating interest on what you owe them. However, if you did make a payment with your extension, there’s nothing to worry about.

If you extended because you had trouble finding a CPA, or your CPA was charging a last minute premium near April 15, realize that there’s another busy period for CPAs as we near the extended tax deadline (although nothing compared to the April 15 rush). You can do yourself, and your CPA, a favor by not waiting until the last minute.

The IRS generally doesn’t allow additional extensions beyond the October 15 extended deadline. So, you’ll want to make sure you are on track to get your taxes submitted by the extended deadline, or you could be faced with stiff penalties by the IRS.