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How to file for an extension on your state and federal tax returns

Twenty/20

Because of the coronavirus outbreak, the IRS and several states have decided to push back the deadline to file your tax return by three months, from April 15 to July 15. You now have until mid-July both to file your federal return and to make any associated tax payments.

"In a world without coronavirus, you would have to file your tax return by April 15," says Riley Adams, a CPA based in the Bay Area. This year, getting everything done in time doesn't have to be an immediate concern.

Depending on where you live, your state may have granted you an automatic extension for your state return as well.

All filers are eligible for that three-month delay. Filing for an extension on your tax returns can buy you even more time, though, if you need it. Here's how to ask for an extension in two steps.

1. Download and fill out IRS Form 4868

The first step is to download Form 4868 from the IRS website. The extension form needs to be filed electronically or, if mailed, postmarked by the tax filing date.

To properly fill out the form, you'll need a few key pieces of information: your personal contact information, your Social Security number, and most critically, an estimate of how much you think you'll owe in taxes. 

Generally, if you know you're going to owe the government, you're supposed to pay by tax day, regardless of whether or not you file an extension. The general protocol is to run the numbers, get an estimate, and include that figure on Form 4868 when you file it.

You can file the completed extension form by mail, or online via one of the IRS e-filing options. If you're using a tax-preparation platform like TurboTax, you can often file an extension that way, too. But be aware that you may be charged a fee.

After you file the form, the extension will kick in automatically, giving you until October 15 to file your return. In a typical year, that's an extra six months from the April 15 deadline. This year, it's an extra three months beyond the new July 15 deadline.

2. Make a payment

To be absolutely clear: An extension gives you extra time to file your taxes, not extra time to pay them.

When you submit your Form 4868, you should also include a payment to the IRS if your estimate shows that you're likely to owe the government money. "You do need to pay what you think you owe," says Adams, "or you'll be hit with a penalty."

The typical failure-to-pay penalty is 0.5% of the unpaid tax for each month, or part of a month, until you pay your bill in full. That can max out at 25% of your total tax liability.

While that payment is normally due on April 15, remember that this year the payment deadline has also been pushed back with the filing deadline by 90 days. So whether you file for an extension or not, you have until July 15 to come up with the money.

If you estimate that you'll owe the government a significant amount and don't think you'll be able to afford to pay it all by midsummer, you can look into IRS installment plans that, for a price, allow you to pay the balance over time.

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Check your state deadlines, too

Although you have extra time to file and pay your federal tax return, your state deadlines may be different. It's important to check if your state has also pushed back its filing or payment deadlines so you don't incur late penalties at the state level.

States typically also allow you to file for an extension on your state return, although the process and forms vary.

The average taxpayer 'likely doesn't need to file for an extension'

Pushing back both the tax filing and payment deadline is one of a series of measures the federal government is taking to help Americans affected by the coronavirus outbreak — along with possible stimulus checks and expanding access to sick leave and unemployment benefits.

But just because you have extra time to file doesn't necessarily mean you should take it. Most Americans who file taxes end up with a refund. Given that experts are anticipating an economic slowdown in the coming months, along with a large number of job losses, getting cash in hand from a tax refund would likely go a long way for many households. 

"Everyone still wants their return" finished soon, Dan Herron, a CPA and principal at Elemental Wealth Advisors in California, recently told CNBC. "People need money."

As of March 13, more than 75% of taxpayers who have filed this year received a refund, and the average refund was almost $3,000, according to IRS data.

For that reason, it may not make much sense to wait, especially if your taxes are fairly simple. "The average taxpayer," says Adams, "likely doesn't need to file for an extension." 

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