If you’re one to wait until the last minute to file your tax returns you might be considering filing an extension. An extension is a formal way to ask for more time from the IRS in order to file your tax return. This year taxes are due on April 17th. Requesting an extension isn’t difficult. All you have to do is answer a few questions on Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. While filing for an extension can have its perks, there are also some disadvantages. Here are some of the pros and cons that you should know when it comes to filing an extension.
Individuals are automatically granted with the additional 6 months to file their tax returns. The extended due date for this year is October 15. If you own a business, you can also request an extension but the deadline is different. For most businesses, the extension deadline is September 17th. Let’s go over a few of the advantages of getting an extension to file:
Filing for an extension gives you an extra 6 months to file. If you are still waiting for tax documents or need time to organize your paperwork, this time extension is a big help. Having this much time allows you to;
- File a more accurate and complete tax return.
- Give yourself a little extra time to do a proper job on your return.
Filing for an extension helps reduce late penalties and tax preparation fees. There are two basic penalties that the IRS enforces;
- The penalty for late-filing– the penalty for filing late is bit sharp. It applies to any portion of your tax that remains unpaid as of the filing date. The penalty is 5 percent per month or part of a month that your tax return is late, up to a maximum penalty of 25 percent.
- The penalty for paying late– the late payment penalty applies to any chunk of your federal tax that remains unpaid as of the due date, which for this year, would be April 17th.
You can avoid either of these when filing for an extension. Some accountants increase their fees as tax day gets closer only to drop their fees again during spring and summer. So if you file an extension, not only can you avoid the IRS penalty fees but you can avoid the increased fees from your accountant.
If you are self-employed, you can be given extra time to fund a retirement plan. Filing an extension will give you an extra 6 months to fund your retirement. If you are self-employed, you might want to fund one of these plans;
Keep in mind that solo 401(k) and SIMPLE plans need to be set up during the tax year but funding the plan doesn’t always occur right away. With SEP-IRA plans may be opened and funded for the previous year by the extended tax return date as long as an extension has been filed.
Not everyone is eligible for extensions. If you are a taxpayer who was approved for an offer in compromise, you must file by the April 17th deadline. If you don’t file by this deadline, the IRS can renounce your offer-in-compromise and re-instate the original amount that you owed. Extra time doesn’t mean more time until you have to pay either. Getting an extension will give you extra time to file but any tax is still due by the original deadline. Married couples also don’t get extra time to switch from joint to separate returns. If you are married and filed jointly by the April 17th deadline, you can swap to the married-filing-separate status by April 18th by modifying your tax return.
If you feel that you need more time to prepare your tax return, filing for an extension might be the best idea. If you have any questions or are curious if you need to file for an extension, don’t hesitate to call us at (855) 851-8318 or visit www.bodineperry.com.