As a self-employed taxpayer, you have an extremely busy schedule, which means you don’t always have time to file your taxes by the tax filing due date. If you’re in a time crunch, you can request an extension from the IRS to help avoid any late fees or penalty charges.
However, there are simple but specific steps you need to take in order to ensure the process is accurate. Here’s how to file a tax extension when you receive a 1099 for income earned as a contractor.
What Happens When I File an Extension?
First off, it’s important to note that filing an extension only extends the time for filing your official tax return. It does not extend the time for paying the tax liability.
That means you need to make a payment for any outstanding tax liability by April 15. If you aren’t sure, you may want to err on the side of overpaying. If you underpay, you may be subject to fines, penalties and interest on the underpaid amount.
If you have 1099 income, you may or may not have already paid your tax liability. You may have made quarterly estimated tax payments throughout the year, in which case your tax liability may have already been covered. If you didn’t make quarterly payments, it’s likely that you have an outstanding tax liability.
If you have only W-2 employee income (or other income where taxes were automatically withheld for you), your tax liability is likely already covered. If you have both W-2 and 1099 income, see our article on how to file taxes in this instance.
How Do I File the Tax Extension, and When Is It Due?
The IRS has some resources on how to file an extension. You’ll need to fill out a paper Form 4868 for the extension or go online if you make an electronic payment through the IRS’s e-file system.
The tax extension Form 4868 is due by the regular due date of your return (April 15). So if you mail it in, make sure it’s postmarked by April 15. If you do it electronically, make sure you do it by April 14 (since there is often a day for the electronic payment to be processed).
How Long Is the Tax Extension, and What Happens After I File It?
Filing an extension as an individual will give you six more months to file your actual tax return.
After you file the Form 4868 extension, you’ll have up to six months to file your return. Since you already sent in the Form 4868, you don’t have to send it again when you actually file your tax return.
Does Filing a Tax Extension Increase My Risk of an Audit?
The IRS doesn’t explicitly comment on what increases the risk of an audit. However, it’s generally believed that filing an extension doesn’t increase your risk of an audit, since you could have a valid reason for requesting the extension. However, either not filing for an extension and still filing late, or filing for an extension and filing after the extended deadline would both likely increase your risk.
Can I File a Tax Extension for Just My 1099 Income?
Since you’re filing your year-end taxes, the government treats an “extension” as an extension of all of your year-end filing requirements. This means anything related to your taxes, whether it’s 1099 income, W-2 income, investment income, etc.
Although you could file a partially completed tax return and later go back and amend it, it’s easier to just file an extension and submit everything at once. Otherwise, you might increase your risk of an audit due to the confusion.
How Much Are the Fines?
If you make a late payment, you are generally charged 5% of the underpaid amount for each full or partial month the payment is late, up to 25%. If you paid at least 90% of your tax liability already, you may be exempt from this late-payment penalty.
If you file past the deadline, you are generally charged 5% of the underpaid amount for each full or partial month the payment is late. The maximum penalty for this late-filing penalty is 25%.
In both cases, you may also be subject to other fines or interest.
What About Filing a State or City Tax Extension?
The above information is only for federal taxes (like self-employment tax or federal income tax). Individual states and cities may have their own specific requirements, so make sure you look into specific requirements for your personal situation.
By using this guide to file a tax extension, you can help reduce your stress level and give yourself some extra time to file. Additionally, you’ll be able to avoid any extra fees, penalties and late charges you might have incurred if you filed your taxes late.
Requesting a tax extension for 1099 income has many benefits. On top of giving yourself additional time and saving money, you could also help reduce the chances of getting audited or having the IRS look into your books. For more tax-time tips, see our articles on avoiding an audit and our complete guide to taxes for the self-employed.