When a taxpayer needs more time to complete their tax return, they can request an automatic six-month extension with the Internal Revenue Service and states (where applicable). This article will focus on automatic extensions in regards to Federal Tax Compliance. An extension is granted by filing IRS Form 4868 which has to be executed by no later than April 17, 2017.
Why April, 17 2017 this year? When the tax due date falls on a holiday or weekend, the deadline is extended to the next business day. This year TAX DAY (April 17th) falls on a weekend. Therefore, the automatic extension extends the taxpayers time to file their taxes until October 17, 2017. One of the most important aspects of tax extensions that taxpayers should know is that a tax extension only extends your time to file your return. It does not extend your time to pay any tax liability (if one is due). Therefore, individual taxpayers are still required to pay their tax liabilities on TAX DAY (April 17th this year).
When filing an extension there are issues that taxpayers need to be aware of:
Living Abroad – If you are a US citizen or resident alien who lives and works abroad, or member of the military on duty outside of the US, June 15, 2017 is the due date for filing your tax returns. Taxpayers should be aware that even though they may have an extra two months to file their returns, they are still required to pay all tax liabilities by April, 17 2017. If your tax liability isn’t paid by the due date, interest will begin to accrue starting on April 18, 2017. This special rule does not apply to citizens who are just traveling abroad. Lastly, members of the Armed Forces who are in combat zones have 180 days after they depart those zones to file their returns and pay any taxes which may be due.
Late Payment Penalty – Once again the extension gives you extra time to file your return and not extra time to pay your tax liabilities. If a taxpayer does not pay their federal tax liability on time, they will be assessed a late payment penalty of 0.5% per month (maximum 25%), plus interest on the unpaid liability.
Retirement Plans – 2016 Retirement Plan Contributions can be made until April 17, 2017. These plans include Roth and Traditional IRA Plans. However, contributions made to self-employment retirement plans can be made until October 17, 2017. Please note that all contributions do not affect the extension process.
Foreign Bank Account Reporting (FBAR) – Taxpayers who own or have signing authority for certain foreign accounts are required to file their reporting online before June 30, 2017. An automatic extension does not extend the time to file this important financial information. However, there has been recent legislation that changes the FBAR due date to be the same as the April due date. That new legislation does not take effect until 2017.
Individual Estimated Taxes – Even if you have filed an extension for your 2016 tax return, the due date for your 2017 Estimated Tax Payment is still April 17, 2017. Taxpayers have a tendency to think the extension also applies to their regular estimated tax payments.
As always, our office is well equipped to answer your income tax questions and those involving automatic extensions. If there are any questions or concerns please do not hesitate to contact us for assistance.