Federal Tax Extension Process

Step 1: Prepare Form 4868

Form 4868 is the "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return." This form extends your filing deadline to October 15, 2025.

Step 2: Calculate Your Estimated Tax Liability

You must pay any taxes owed by April 15, 2025, to avoid penalties and interest.

1. Gather your financial documents:
   
   
   • Income documents (W-2s, 1099s, K-1s)
   • RSU vesting statements and option exercise documents
   • Investment statements showing capital gains/losses
   • Rental property income and expense records
   • Business income and expense documentation
   • Deduction records (mortgage interest, charitable contributions)

Get your full checklist here.

2. Calculate your estimated federal tax:
   
   
   • Start with your total income (wages, RSU income, business income)
   • Add investment income (dividends, capital gains)
   • Subtract adjustments to income (retirement contributions, HSA)
   • Subtract standard or itemized deductions
   • Calculate tax based on your tax bracket
   • Add any alternative minimum tax (AMT) if applicable
   • Subtract credits you qualify for
   • Subtract federal income tax already withheld
   • Subtract estimated tax payments already made

3. For equity compensation:
   
   
   • RSUs: Account for taxes already withheld at vesting (typically 22-37%)
   • NSOs: Calculate the bargain element (market price minus strike price)
   • ISOs: Consider potential AMT implications

You can learn more about how equity is taxed here.

4. For capital gains:
   
   
   • Separate short-term (held < 1 year) from long-term (held > 1 year) gains
   • Apply appropriate tax rates (ordinary income for short-term; 0%, 15%, or 20% for long-term)
   • Include 3.8% net investment income tax if your income exceeds thresholds

Step 3: File Your Extension Request

Choose one of these filing methods:

• Electronic filing through tax software
• IRS Free File on the IRS website
• Mail a paper form to the IRS address listed on Form 4868

The extension must be submitted by April 15, 2025.

Step 4: Pay Your Estimated Tax

Even with an extension, payment is due April 15, 2025. Payment options include:

• IRS Direct Pay: Pay directly from your bank account
• Electronic Federal Tax Payment System (EFTPS): Requires enrollment
• Credit/debit card: Fees apply
• Payment with extension form: Include payment when filing Form 4868
• Check or money order: Send with a payment voucher

State Tax Extension Process

Step 1: Determine Your State Requirements

State extension requirements vary:

• Automatic extension states: Many states automatically grant an extension if you receive a federal extension
• Separate filing states: Some states require their own extension forms

Step 2: File State-Specific Extension Forms (If Required)

Common state-specific forms include:

• California: Form FTB 3519
• New York: Form IT-370
• New Jersey: Form NJ-630

Step 3: Calculate and Pay Estimated State Taxes

For your resident state:

• Calculate tax on all income following state-specific rules
• Subtract state taxes already withheld
• Pay estimated amount due by your state's deadline

For non-resident states:

• Calculate tax on income sourced only to those states
• File extensions for each applicable state
• Pay estimated taxes owed to each state

Multi-State Considerations

If you have income across multiple states:

1. Determine your state of legal residence/domicile
2. Identify which states have taxation rights to different income sources
3. Calculate credit for taxes paid to other states
4. Review any reciprocity agreements between states
5. File separate extensions for each state where required

For Complex Financial Situations

Real Estate Investments

For properties owned across multiple states:

1. Calculate net income or loss for each property
2. Track passive activity limitations
3. Allocate expenses properly between states
4. Consider depreciation recapture if properties were sold

For a full guide on tax advantages of real estate, read more here.

Stock Options and RSUs

1. Maintain detailed records of grant dates, vesting dates, exercise dates, and sales
2. For ISOs, track holding periods to determine tax treatment
3. For disqualifying dispositions, calculate additional ordinary income

After Filing Your Extension

1. Receive confirmation of extension filing (keep for your records)
2. Continue gathering necessary documentation for your complete return
3. Work with your tax professional to complete returns
4. File your complete tax returns by October 15, 2025

Important Reminders

• An extension gives you more time to file, not more time to pay
• Payments made after April 15, 2025, will incur penalties and interest
• The late payment penalty is 0.5% of unpaid taxes per month (up to 25%)
• Interest charges apply at the federal short-term rate plus 3% (compounded daily)
• Filing an extension eliminates the more severe 5% per month late filing penalty
• When estimating taxes due, it's better to slightly overpay than underpay
• If you’re ready to make your estimated payment, go irs.gov/payments.

Following these steps will help ensure you properly extend your tax filing deadline while avoiding unnecessary penalties and interest charges.

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