"Extend" You Say? What Does That Mean To Me?
As we approach the tax filing deadline for individuals, which this year is April 18 due to a holiday recognized in Washington, DC, it is time for many people to consider whether or not they should file for an extension of time to file.
But what does that mean to you if you do? Here’s some common questions answered:
Q: What does filing an extension do?
A: An extension is a form filed with the IRS to request additional time to file your tax return. The extension period is 6 months, which extends the due date for submitting your 2015 returns to October 17 (October 15 falls on a Saturday this year).
Filing an extension does NOT grant you more time to pay any tax due, so you still need to estimate whether you will owe any taxes and pay that estimated balance by the original due date. Penalties may be assessed if sufficient payment is not remitted with the extension, and interest will be charged.
Q: Am I more likely to be audited if I extend?
A: Extending will NOT increase your likelihood of being audited by the IRS. In fact, while not a hard conclusion, some statistics suggest that those who extend are somewhat less likely to get audited. And it is certainly better to file an extension than to file a return that is incomplete or that you have not had time to review carefully before signing.
Q: What are the primary benefits of extending my tax return?
A: There are several benefits to extending, including:
• It provides for additional time to file returns without penalty when you are waiting for missing information or tax documents (such as corrected 1099s, which are becoming more and more common these days).
• 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, then possibly having to amend your return later.
Q: Should I do anything differently if I am filing an extension?
A: No; if you have a CPA, you still should give your CPA whatever information you have as early as possible or as soon as it becomes available. As stated earlier, since you need to pay any anticipated taxes owed by April 18, 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.
If you are required to make quarterly estimated tax payments, your first quarter estimated tax payment is also still due on April 18. Your CPA 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 your CPA will likely try to get your extended return done as soon as possible once all tax information is available. He or she may also want to discuss tax planning opportunities with you so that in future years, you don’t give the IRS an interest-free loan all year!
Q: Is there anything I can do to avoid filing an extension if I know I am missing some information now?
A: If you already know you will be waiting until the last minute for one or two documents, you may be able to minimize the chance of having to file an extension by providing all other available documents to your CPA as soon as you receive them. By doing so, he/she can prepare a draft return for you to review and discuss in advance, and may be able to add the missing piece of data or last-minute information and still be able to complete your returns by April 18 (depending on their workload).
However, remember that it is still often advisable to file the extension so that both your CPA and you can give the proper attention to your return that it needs.
