Well, finally, you managed to launch your side business on Depop – selling vintage hoodies. But guess what? Tax season is coming soon. And this upcoming deadline scares you to death, and here is why. Fortunately for you, the IRS knows that you are going to struggle, and that is why they gave you some safety net – filing an extension.
However, before getting to work on filling out the forms, let us discuss something first. Extension buys you more time to file, but not to pay. So, if you owe taxes, you have to pay it regardless of the status of your return. You can compare it to an essay where you have to turn it in, as well as pay the tuition.
To do so, you have to use Form 4868 which can be downloaded on the official website of the IRS or through such services as TurboTax and H&R Block. As always, it is going to ask you for your name, address, and Social Security Number. Moreover, you will need to estimate your tax amount throughout the year. Be ready to work a little bit!
You can apply for an extension electronically through the IRS Free File if your income is under a certain limit. Otherwise, you can use IRS Direct Pay and tick the box where it says ‘extension’. It may sound a little bit intimidating but the process itself is surprisingly simple if you fill it in.
Moreover, if you owe any taxes, you will have to pay at least 90 percent of their total amount at the moment of filing the extension. Otherwise, you will be fined for it, which means throwing money into the fire. Calculate the amount of income you earned on Etsy or freelancing, or that lemonade stand, and look at the tax bracket you fall into.
In case you cannot figure out how much money you have to pay, use a tax calculator and look up the current tax brackets. Overpayment will not be that bad since you will get the refund, so it would be better than not paying it at all. This is your business, and you have to treat the IRS accordingly. Eliminate the stress, fill out the form, and everything will be alright.
So now you managed to get yourself an extension, and you have 15 days until October to file everything else. Collect your receipts for your business expenses and even your new laptop if you had to buy it recently. Contact a tax professional if your Excel table looks like Jackson Pollock’s artwork.