Filing for an extension of time to file your tax return can be an important strategy for you to implement as we move closer to the April 18th due date for individuals.
An extension is a form filed with the IRS to request additional time to file your federal tax return. The extension period is six months, which extends the due date for submitting your final returns from April 15th to Oct. 15th. In most cases states will also provide for the 6 month extension time period.
Filing an extension grants you additional time to submit a complete and accurate return. However, the catch is that you still need to estimate and pay the tax you will owe by April 18th (this year’s tax deadline) or face potential penalties.
Extending your return allows you and your CPA more time to prepare your tax return to ensure a filing of an accurate tax return. In many cases, you may still be waiting for additional information (Schedule K-1s, corrected 1099s or other tax return information) to complete your tax returns.
There is a common myth that if you extend you will be more likely to be audited?
Extending will NOT increase your likelihood of being audited by the IRS.
It is better to file an extension rather than to file a return that is incomplete or that you have not had time to review carefully before signing
What are the primary benefits of extending my tax return?
Filing an extension allows additional time to file returns without penalty when you are waiting for missing information or tax documents (such as corrected 1099s).
Just remember that an extension provides additional time to file, but not additional time to pay. Penalties may be assessed if sufficient payment is not remitted with the extension.
Filing an extension allows for time to observe what is happening with the upcoming tax law changes and to make decisions regarding how to file your taxes. Often there are decisions/elections you can make after the end of the year that could impact how your taxes are filed. In addition, you may qualify for additional retirement planning opportunities or additional time to fund certain types of retirement plans (e.g., SEP IRA).
It is often less expensive (and easier) to file an extension rather than rushing now and then possibly needing to amend your tax return later.
Should you do anything differently if you are filing an extension or “going on extension”?
No, you still should give your CPA whatever information you have as early as possible or as soon as it becomes available. You still need to submit all available tax information to your CPA promptly so he/she can determine if you will have a balance due or if you can expect a refund.
Don’t forget that if you are required to make quarterly estimated tax payments, your first quarter estimated tax payment is also due April 18th. Generally we may recommend that you pay the balance due for last year and your first quarter estimated tax payment for this year with your extension.
If you are anticipating a large refund, chances are we will likely try to get your extended return done as soon as possible once all tax information is available. Also, consider various tax planning opportunities so that in future years, you don’t give the IRS an interest-free loan all year.
If you have questions about whether it would be advantageous for you to file for an extension of time to file your taxes speak to your Henry+Horne tax consultant.
Gary W. Fleming, CPA