Should You Extend Your Tax Return in 2025?
Tax season can feel like a sprint to the finish line, especially if you are juggling a busy schedule or waiting on last-minute paperwork. If April 15 is creeping up and you are not ready to file your taxes, don’t panic—extending your tax return is a straightforward option that can buy you some breathing room. Here’s everything you need to know about extending your tax return, why you might want to do it, and how to make it happen.
Why Extend Your Tax Return?
Life happens. Maybe you are missing a crucial W-2, your side hustle’s receipts are a mess, or you just need more time to ensure your deductions are airtight. Filing an extension gives you an additional six months to get your ducks in a row, pushing your federal tax return deadline from April 15 to October 15. It’s a safety net that can help you avoid rushed mistakes—or worse, late-filing penalties.
One key thing to understand: an extension to file is not an extension to pay. If you owe taxes, you’ll still need to estimate and pay what’s due by the original deadline to avoid interest and penalties. More on that later.
Who Can File for an Extension?
Good news—pretty much anyone can request a tax extension! Whether you are an individual taxpayer, a small business owner, or someone with a complex financial situation, the IRS offers this option to all. Common reasons people extend include:
Missing documentation (like a 1099 or K-1 form)
Needing more time to maximize deductions or credits
Dealing with a personal emergency or unexpected life event
Working with a tax professional who can spend more time with you once their busy season calms down
As of today, March 12, 2025, we are still a month out from the 2025 tax deadline (April 15), so you’ve got time to plan ahead.
How to File for an Extension
The process is simpler than you might think. Here’s how to do it:
Use Form 4868: The official way to request an extension is by filing IRS Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” It’s a short form that asks for basic info like your name, address, and Social Security number, plus an estimate of your tax liability.
File by April 15: You need to submit Form 4868 by the regular tax deadline (April 15, 2025, for the 2024 tax year, unless it’s adjusted for weekends or holidays).
Electronic or Paper Options: You can e-file Form 4868 through tax software or the IRS Free File service, or mail it in if you prefer the old-school route. E-filing is faster and gives you instant confirmation.
No Explanation Needed: The extension is automatic—you don’t need to justify why you are asking for more time. The IRS grants it no questions asked.
Pay What You Owe: Estimate your tax liability and send a payment with your Form 4868 if you owe anything. This avoids late-payment penalties and interest, which start accruing after April 15.
Alternatively, if you use a tax professional or software like TurboTax or H&R Block, they can often handle the extension request for you—just check with them.
Paying Taxes During an Extension
Let’s clear up a common misconception: extending your filing deadline doesn’t mean you can delay paying what you owe. The IRS expects you to pay at least 90% of your total tax bill by April 15 to avoid a failure-to-pay penalty (currently 0.5% per month of the unpaid amount, plus interest). If you are not sure what you owe, make your best guess based on last year’s return or any income records you have. Overpaying is fine—you’ll get a refund later when you file.
Pros and Cons of Extending
Pros:
Avoids rushed errors that could trigger an audit or missed deductions
Gives you time to consult a tax pro or gather records
Reduces stress if you are not ready by April
Cons:
You still need to estimate and pay by April 15
Interest accrues on any unpaid balance after the original deadline
Some states may have different rules (more on that below)
What About State Taxes?
Most states align with the federal extension, but not all. If you are filing a state return, check your state’s tax agency website. Some states automatically extend if you file a federal extension, while others require a separate form. Don’t assume—double-check to avoid surprises.
Final Tips for a Smooth Extension
Start Early: Even if you are extending, estimate your taxes now to avoid a last-minute scramble.
Keep Records: Save proof of your extension request and payment (e-file confirmation or postmarked envelope).
Mark Your Calendar: October 15, 2025, will be your new deadline—don’t miss it, as there’s no second extension for individuals (businesses have different rules).
Talk to a Tax Pro: If your situation feels overwhelming—say, you’ve got rental properties, crypto trades, or a new business—consulting a tax professional can save you time and ensure you are not leaving money on the table.
Extending your tax return isn’t a sign of failure—it’s a smart move when you need it. Whether you are a perfectionist chasing every last deduction or just someone who got hit with a curveball, that extra six months can make all the difference. So, take a deep breath, file Form 4868, and give yourself the gift of time this tax season.
Scenario 1: First-Year U.S. Resident with Foreign ETFs
Question Recap: You moved to the U.S. in 2023 on a work visa and are filing your first tax return as a U.S. resident. You’ve discovered the PFIC rules and Form 8621 while preparing your return, particularly regarding ETFs held in your home country’s retirement accounts. You’re concerned about high tax rates, taxes on unrealized gains, and the cost of compliance. You’re also wondering if Form 8621 applies to you and why these rules target someone in your situation rather than others with larger offshore holdings.
Explanation: A PFIC is defined as a foreign corporation where at least 75% of its income is passive (e.g., dividends, interest) or 50% of its assets generate passive income. Many foreign ETFs and mutual funds, including those in retirement accounts, meet this definition. As a U.S. resident for tax purposes, you’re subject to U.S. tax rules on worldwide income, which includes reporting PFICs on Form 8621.
Form 8621 is required for each PFIC you own, directly or indirectly, unless an exception applies (e.g., total PFIC value under $25,000 for individuals, though this exemption has conditions). The default tax treatment taxes “excess distributions” (e.g., gains upon sale) at the highest ordinary income rate, plus interest on deferred tax. Alternatives like the Qualified Electing Fund (QEF) or mark-to-market elections may reduce the tax burden but require specific information from the fund and additional calculations.
The rules apply regardless of your intent or the size of your holdings because they’re designed to ensure U.S. taxpayers report foreign investments consistently. Foreign retirement accounts aren’t automatically exempt, as the IRS doesn’t recognize their tax-deferred status unless covered by a specific tax treaty.
Options to Consider:
Confirm whether your ETFs are PFICs (check fund documentation or consult a tax professional).
File Form 8621 for 2023 if applicable, choosing a tax method based on available data.
Explore selling the ETFs and reinvesting in U.S.-based funds, noting any home country taxes or penalties.
Work with a tax advisor to assess costs and compliance requirements specific to your situation.
Scenario 2: Starting PFIC Compliance Without Amending Past Returns
Question Recap: You hold overseas mutual funds and are addressing PFIC compliance. A CPA advised starting compliance with the current year’s return rather than amending past ones, suggesting the IRS may not actively enforce prior non-filing due to limited automated oversight. You’re seeking experiences from others who’ve taken this approach, insight into IRS enforcement, and tips for managing compliance.
Explanation: Form 8621 must be filed annually for each PFIC, even if no distributions occur, unless an exception applies. The IRS doesn’t currently issue automated notices for missing Form 8621s, unlike some other forms. Enforcement typically occurs during audits, often triggered by unrelated issues like unreported foreign accounts or significant income discrepancies. If Form 8621 was never filed, the statute of limitations may remain open for those tax years, allowing the IRS to assess penalties later.
Some taxpayers choose to begin filing Form 8621 in the current year without amending prior returns, particularly if past PFIC activity was minimal. Others opt to amend past returns or use programs like the Streamlined Filing Compliance Procedures to report prior omissions, depending on their risk level and exposure.
Options to Consider:
Begin filing Form 8621 with your 2023 return, selecting a tax method (default, QEF, or mark-to-market) based on available fund data.
Evaluate amending past returns if your PFIC holdings or distributions were significant, weighing the cost against potential audit risk.
Shift future investments to U.S.-based funds to simplify reporting.
Consult your tax advisor to determine the best approach for your specific circumstances and document your compliance efforts.
Scenario 3: Dual U.S./Canada Citizen with Canadian ETFs
Question Recap: As a dual U.S./Canada citizen living in Canada, you’ve invested in VFV (Vanguard Canada’s S&P 500 ETF), worth $200,000 with $50,000 in gains. You’ve learned VFV is a PFIC and provides a PFIC Annual Information Statement. You’re considering selling it, paying taxes on the gains, and buying U.S. ETFs instead. You’re asking if Canadian ETFs are problematic for U.S. citizens and whether selling resolves past non-compliance.
Explanation: VFV, as a Canadian-registered ETF, is classified as a PFIC under U.S. tax rules, even though it tracks a U.S. index like VOO. U.S. citizens, regardless of residence, must report PFICs on Form 8621 annually. The availability of a PFIC Annual Information Statement from VFV allows you to use the QEF election, reporting your share of the fund’s income each year rather than facing the default tax treatment.
Holding Canadian ETFs isn’t prohibited, but it triggers PFIC reporting requirements, which many U.S. taxpayers find burdensome. Selling VFV and buying a U.S.-listed ETF (e.g., VOO) eliminates future PFIC issues. However, past years without Form 8621 filings remain non-compliant unless addressed.
Options to Consider:
Sell VFV, report the $50,000 gain on your Canadian and U.S. returns, and reinvest in a U.S. ETF to avoid future PFIC reporting.
For past years, file late Form 8621s with QEF elections using VFV’s statements, or begin compliance with the current year if the risk seems low.
Use a brokerage that allows purchases of U.S.-listed ETFs from Canada for future investments.
Review your situation with a tax professional familiar with U.S./Canada tax rules to confirm requirements and address prior years.
Key Takeaways
The PFIC rules and Form 8621 apply to U.S. taxpayers with foreign mutual funds or ETFs, often requiring detailed reporting and tax calculations. Whether you’re new to U.S. tax residency, managing overseas investments, or a dual citizen, the steps forward include:
Identifying which of your holdings are PFICs.
Deciding how to report them (or reposition assets to avoid PFICs).
Assessing past compliance and future strategies with a tax professional.
Each situation is unique, so professional guidance tailored to your circumstances is essential. If you have additional questions about PFICs or other tax matters, feel free to reach out—I’m happy to assist with resources or referrals.
📅 Book a consultation today to prepare for the 2025 tax year with confidence.
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Disclaimer: This blog provides general information and is not a substitute for personalized tax advice.