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Why Filing Your Taxes Late May Be A Good Idea (The Wall Street Journal)
Should you skip filing your tax return on April 15?
Eleven million taxpayers do, and it can be a smart move, especially for people with complex returns.
Those who are in the process of converting taxable Individual Retirement Accounts to tax-free Roth IRAs can use an extension to make money-saving moves. Home buyers who haven’t completed their purchases but plan to take either of two generous federal tax credits can benefit by waiting.
A few years ago the IRS streamlined this process. All taxpayers now qualify for an automatic six-month extension to Oct. 15. To claim it you simply submit Form 4868, which is one page long, by April 15.
There is a catch, of course. Extension to file doesn’t mean extension to pay, so you can’t just put off the process for six months. Taxpayers must estimate and send in by April 15 the amount they will ultimately owe. If there turns out to have been an underpayment, Uncle Sam charges interest from April 16 until the date the return is received. (The rate is currently 4%.) If the shortfall is more than 10%, taxpayers can expect to get hit with additional penalties beyond interest owed.
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One thing to add about extensions that a lot of people don’t know: your best option is to file an extension online. That way you’re guaranteed to get a response from the IRS and can re-file if your request was rejected. If, on the other hand, you choose to send the IRS your request through the mail, you will never hear anything. That means it may never get to the IRS or it could be rejected. That will mean you’re accumulating late filing penalties without even knowing it.