How to File A Cryptocurrency Tax Extension

Need more time to file your cryptocurrency taxes? 

If you find yourself in this situation, you may want to consider filing for a tax extension. While you’ll still need to make a payment before the deadline if you owe taxes, you’ll get more time to accurately report your cryptocurrency transactions. 

In this guide, we’ll explain everything crypto investors need to know about filing for a tax extension. We’ll break down when you should consider filing a tax extension and walk through the steps you need to take to file one. 

What is a tax extension? 

A tax extension gives individual taxpayers an extra six months to submit their tax return. 

The deadline for filing an extension is April 15, the same day as the tax filing deadline. 

It’s important to remember that even with an extension, any tax payment owed is still due on the day of the tax deadline. Even if you do not know your exact tax liability, you are required to make an estimate. 

What happens if I don’t file a tax extension or make an extension payment? 

If you don’t file either a tax return or an extension by the April 15 due date, you will be charged a penalty and interest by the IRS for failing to file.

You will be charged interest by the IRS on any amount of underpayment for taxes that weren’t paid by April 15. These amounts are calculated when you do actually file your tax return, so the longer you wait to pay any taxes you owe, the more interest will accrue. 

When should I file a tax extension for my cryptocurrency? 

Not sure whether you should file a tax extension? Here are two common reasons why crypto investors opt to take more time to file their tax return. 

• Complex activity: Calculating your tax liability can be difficult in some circumstances — for example, if you’ve been interacting with multiple DeFi protocols or trading cryptocurrencies with margin. Filing an extension will allow additional time to sort through any complex transactions.
• Last-minute filing: Typically, taxpayers submit more errors in the weeks immediately leading up to the tax deadline. If you find yourself reporting your taxes at the last minute, you may want to consider filing for an extension to give yourself time to submit an accurate tax return. 

Remember, cryptocurrency tax software like CoinLedger can help simplify the tax reporting process. The platform can integrate with your exchanges and wallets to save you hours of manual effort.

What should I do if I can’t pay my crypto tax bill? 

Some investors explore filing for a tax extension when they’ve incurred large tax liabilities they cannot afford. 

It’s important to remember that filing a tax extension will give you more time to file your taxes, but it does not give you more time to pay your tax liability. Again, you are required to make an estimated extension tax payment before the deadline. 

If you’re unable to pay your tax bill, it’s recommended that you pay off as much as you can before the deadline. In addition, you may be eligible to pay off any tax owed to the IRS in monthly installments. You can attach Form 9465 in order to request an installment plan with the IRS.

How to file a tax extension 

To file for a tax extension, you should fill out Form 4868 before the tax deadline. You can submit this form online, or you can fill it by hand and mail it to the IRS. 

On the form, you’ll need to provide your personal information and your estimated tax liability. 

When you complete and file the form, you will automatically be granted a six month extension. 

You can also file an extension by making an extension payment through the ‘Direct Pay’ feature on the IRS website. Click ‘Make a Payment’ and then select ‘Extension’ as the reason to make the payment. 

When you make an extension payment to the IRS through this method, you are considered to have sufficiently filed for an extension. It’s recommended that you save a copy of your tax payment for your records. 

How do I file a tax extension for my individual state? 

While some states will automatically extend your tax return filing deadline if you file a federal extension, some states require you to file an extension separately. If you need to file for a state tax extension, reference information provided by your state tax authority for the appropriate steps. 

Remember, you will need to pay your estimated state tax liability before the deadline along with your estimated federal tax liability. 

How can I estimate how much to pay with my extension payment? 

To figure out how much to pay with your extension payment, you should first estimate your tax liability by totaling your income from all sources. This includes income from disposing or earning cryptocurrency during the tax year.

Once you’ve done this, you’ll need to estimate your tax liability based on your total income. You can then make an extension payment on any income on which you haven’t already paid tax. Most of the time, wage earners have already paid the taxes they need to throughout the year with tax withholdings on their paychecks.

It’s important to remember that collecting data on all of your taxable crypto transactions may take time. You should prepare well in advance of the tax deadline even if you are planning to file an extension. 

The easiest way to estimate your tax liability is to use crypto tax software like CoinLedger. Simply connect your wallets and exchanges, and the platform will calculate your taxes in just minutes. 
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What if I underestimate or overestimate my taxes? 

If you underestimate your tax liability, you’ll be required to pay the IRS the remainder of what you owe plus potential penalties and interest. However, it’s likely that the amount of penalties and interest you’ll incur in this situation will be substantially less than the penalties and interest that would accrue if you made no payment at all. 

If you overestimate your tax payment, the government will refund any money they owe you once you file your tax return. In most instances, the IRS will send you a refund within 21 days. 

Get started with CoinLedger 

Trying to report your crypto taxes can be a nightmare. CoinLedger can help simplify the process. 

CoinLedger was designed to be easy to use for the everyday crypto investor. With automatic integrations to exchanges like Coinbase and blockchains like Ethereum, you can file your taxes in minutes. That’s why more than 500,000 investors across the globe use CoinLedger!

Get started with a free preview report today.

Frequently asked questions 

Let’s cap things off by answering a few frequently asked questions about cryptocurrency tax extensions. 

Can you file an extension to file your tax return? 

Yes. Taxpayers do have the ability to file a tax extension. It’s important to note that an extension gives you additional time to file your taxes, but it does not give you additional time to pay your taxes.

Can I electronically file my tax extension? 

Yes. You can electronically file a tax extension for free using IRS Free File or you can file when you pay through IRS Direct Pay. 

What is the last day to file a tax extension? 

Typically, the deadline for filing a tax extension is April 15. For the 2021 tax year, the last day to file for a tax extension was April 18, 2022. 

Does filing a tax extension increase audit risk? 

Filing a tax extension does not increase your risk of being selected for a cryptocurrency tax audit. In fact, taking time to accurately report your taxes will likely decrease your audit risk. 

What happens if you don’t report cryptocurrency on your taxes? 

Tax evasion is considered a felony, and the IRS tracks cryptocurrency transactions with the help of contractors like Chainalysis.