Does tax season have you feeling like a sailor aboard the Titanic? You see the iceberg coming and you just can’t turn the ship in time. Mayday!
Does your tax iceberg look more like an April 15 (okay, April 18 this year because of the 15th falling on a weekend) deadline with an inevitable collision? You know it comes at the same time every year, but you’ve managed to live in a state of denial long enough to get you into this frenzied mess. You just can’t muster the strength to get organized and broach the tax chore head on.
Capsizing is not the only option. The IRS has an olive branch for you: extension.
“Extension” is not a dirty word. In fact, filing an extension has a number of benefits.
But first, what is an extension?
When you know that you’ve waited too long and that meeting the filing deadline just isn’t going to happen, you can file an extension. By submitting a simple form with the IRS, you can buy yourself, and your CPA, six months of extra time.
Instead of filing by April 15, take a deep breath, get organized, and pull your act together by October 15.
A common misconception is that you get to delay everything for six months, but this is only partially true. While you will not be penalized for filing an extension, you will be charged penalties and interest on any amount due that is not paid by the original April deadline.
In order to avoid unnecessary charges, do a quick estimate of any taxes you may owe and submit that payment by the first deadline. When you do a more accurate calculation for your real tax filing, you can recoup any overages and ideally avoid paying any more in penalties or underpayment interest.
Excuses for Extensions
People file extensions for a variety of reasons, not just laziness or lack of planning.
In many cases, certain tax documents like Schedule K-1s and corrected 1099s arrive late in the tax season and cannot be processed in time to meet the filing deadline. Additionally, some types of transactions or data are more complex than those on average returns and require more time and documentation. For individuals who have bought or sold rental property in the last year, filing an extension will help tax professionals ensure that these transactions are presented accurately on all forms.
Benefits of Filing an Extension
An obvious benefit of delaying filing is the peace of mind that you have taken the time to gather the right materials and done sufficient preparation to submit accurate taxes. You can eliminate the fear that the IRS is hiding around the corner waiting to jump out and grab you–or at least send you one of those dreaded accusatory letters.
An extension gives you and your CPA the time and space to prepare taxes un-frenzied. It is often cheaper and easier to file an extension than to pay rush fees or file an amended return later if you receive late forms after filing.
While a good tax professional will always provide their services to the best of their ability, it’s an obvious reality that he/she is much less crunched for time in August than in April.
That being said, if you are anticipating a large refund, your CPA should work to file your return as quickly as possible before the new deadline. There is no reason for you to be loaning money to the government (interest-free!) any longer than necessary.
Extension Myths Debunked
Many people fear that filing an extension puts them on a sort of covert “Most Wanted” list that hangs on the wall of IRS headquarters. This is not the case. Filing an extension does not increase your likelihood of getting audited nor does it make you “Public Enemy Number One” of the taxman.
Extensions are a great option for a variety of reasons. While they do prolong a process that many view as a necessary evil, they can also ensure that you file accurate taxes and avoid paying fees or penalties later.
Remember, even if you are considering filing an extension, be sure to submit all of your materials and documentation to your CPA as early as possible, even if you are waiting on a few straggling forms. He/she can start a draft version of your return and may even be able to include last-minute materials if they arrive just before the April deadline. And if not, you will have an accurate estimate of what may be owed or due before you file an extension.
Is the tax iceberg looming straight ahead? Contact us to see if filing an extension is a wise move for you this year. (865) 691-8509.