Form 1127 – Read Our Step by Step Guide on How to File Properly
When Can You Extend Tax Payment Time Using IRS Form 1127?
April 15th is a date set in stone, or is it? Generally, taxpayers should send in their payments by this date; but sometimes, that is impossible. Even the Internal Revenue Service (IRS) understands that you might have an emergency, which prevents you from filing on time.
If you need more time to pay your taxes, you can file IRS Form 1127, which is called “Application for Extension of Time for Payment of Tax Due to Undue Hardship.” We will discuss valid reasons for late payment. And, we will provide a step-by-step guide for filling out the aforementioned form.
Who Should File?
Who is eligible to file IRS Form 1127? If you are going to owe any of the following taxes AND paying your taxes on time will cause a serious financial burdern on you, then go ahead and file for a payment extension:
- Income taxes
- Self-employment income taxes
- Withheld taxes on nonresident aliens and foreign corporations
- Taxes on private foundations and certain other tax-exempt organizations.
- Taxes on qualified investment entities
- Taxes on greenmail
- Taxes on structured settlement factoring transactions
- Gift taxes
Tax Payments on Other Incomes
You can also file for a payment extension if you receive a demand notice and paying th taxes owed will financially burden you or cause a significant financial loss:
- Normal taxes and surtaxes
- Income frowm eligible investments
- Taxes on private foundations and certain other tax-exempt organization
Avoid a Midnight Post Office Visit
Illness, death or natural disaster can make it simply impossible for you to pay or file your taxes on time. If you do not pay them on time, you might be penalized financially. If you have a valid reason for filing late, then you don’t need to try to make that midnight post office visit on April 15th.
Remember! Filing Taxes vs Paying Taxes
Take Note: Paying your taxes and filing your taxes are two separate actions. It’s easy to file for a tax extension BUT you still have to pay your taxes on April 15. If you’re thinking of doing both, you would need to file 2 different forms.
What Constitutes a Good Reason for Paying Late?
According to the instructions for Form 1127, you can request an extension if “paying the tax at the time it is due will cause undue hardship.” The IRS defines an “undue hardship” as a “substantial financial loss.” It is more than a financial inconvenience or an afterthought.
It really depends on your circumstances. For some, missing a day at work could lead to a “financial loss.” However, for the IRS, they might look more at more dramatic losses, like selling real estate for a loss or breaking an investment portfolio.
Of course, some people will argue that you should have had plenty of time to prepare your taxes. Moreover, some would even argue that paying taxes is an annual inevitability. You might have procrastinated, which led to said undue hardship.
Nevertheless, the following might be considered valid reasons for paying taxes later:
- Illness or Death
- Military Service
- Records Destroyed
- Natural Disaster
Caregivers might have planned on filling out their taxes, only to have a family member fall sick. Or, the taxpayer might have fallen sick. Or, if someone dies, tax payment might be late due to the wake, funeral costs and so forth.
Step by Step Guide for Filing
The IRS has made the late filing form easy to fill out. There are simply three sections: request, reason and supporting documentation. Here are the specific instructions for filling out each section.
1. Request for Extension
You will start by filling out your consumer information. Nowadays, the IRS will provide you with an information sticker label that saves you time. Simply place this on the top of the form.
Fill out Part 1: Request for Extension with the date that you want the payment extended to. This also has a box for the estimation of your tax. Refer to the last tax form that you used in the next section. And then, list the calendar year for which your request is being made.
2. Reason for Extension
Next, you must explain your undue hardship in Part 2: Reason for Extension. The IRS gives you five lines to explain your situation. The IRS wants a specific statement about something interrupting your normal life; the IRS will not grant extensions for general problems.
3. Supporting Documentation
Finally, you must provide documentation to support your request. In Part 3: Supporting Documentation, you must attach and include the following:
- Assets & Liabilities
- Income & Expenses
The statement of assets and liabilities must show book and market value of assets for the end of the previous month. Securities must be designated as listed or unlisted. The itemized income and expenses list must be for “each of the 3 months prior to the due date of this tax.”
How Long is the Extension Period
The IRS generally extends tax payments and tax filing extensions for 6 months. For the 2018 tax season, the six-month deadline will be October 15. However, if you are out of teh country, the government usually can give an 18-month extension. Remember, extending your tax payment will not excuse you from paying interest on teh amount due.
If something makes it impossible for you to pay your taxes, don’t worry – just file 1127 and ask for an extension. The IRS will grant an extension for valid mishaps.
Should I File IRS Form 4868?
Did you know that there is another IRS Form 4868, called “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return?” What is the difference between these two forms? With Form 4868, you need to pay your taxes on April 15th; with the other, you can delay payment.
IRS Form 4868 gives you 6 more months to fill out the tax form and submit it the IRS. You must estimate your taxes and pay them on April 15th to avoid a penalty.
You can buy yourself some time to pay your taxes or extend your tax filing. Or you can do both