If you can’t file by April 18, get an extension

Published 6:30 am Sunday, April 10, 2011

April 18, the tax filing deadline for 2010 returns, will be here before you know it. If you won’t be able to file your income tax return by then, be sure to file a Form 4868 with the IRS. The extension is automatically granted, and it gives you until October 17, 2011, to file your return.

    Be aware, however, that an extension to file does not extend your time to pay. The IRS will still assess interest on any unpaid tax balance. In addition, unless you pay at least 90% of your estimated tax liability by April 18, you may be hit with a late-payment penalty.

In certain circumstances, even if you have no problem submitting your tax return by the April 18 deadline, getting an extension might still be a good idea.

    If you aren’t able to pay all of the taxes that you owe by April 18, an extension will allow you to defer paying some of your taxes until October 17. As long as you have paid 90% of your total tax liability by April 18, you should not be subject to IRS penalties on the balance due. And even though you will owe interest on the shortfall, the rate of interest charged by the IRS may be less than the cost of borrowing elsewhere.

    If you are self-employed and you need a few extra months to gather the money necessary to pay your income taxes and to fully fund your retirement plan, you might also benefit by filing for an extension. To deduct contributions made to a retirement plan, the contributions must be made prior to the due date of the tax return, including extensions. By filing a Form 4868 with the IRS, you have up to six additional months to fund your retirement plan. One strategy commonly used by self-employed individuals is to pay the full amount of tax due with the extension, and then to fund their retirement plan six months later.

    David Compton is a

Certified Public Accountant with offices in Meridian and Birmingham, Ala.