Filing for a tax extension might be the best solution if you need more preparation time as the deadline for filing your federal taxes approaches.
In this article:
- What Is a Tax Extension?
- Pro: You Gain a Six-Month Extension on the Filing Deadline
- Con: You Do NOT Gain an Extension on the Payment Deadline
- Pro: Anyone Can Obtain a Tax Extension
- Pro: The Tax Extension Request Process Is Simple
- Pro: You Reduce Your Chances of Being Audited
- Con: It May Not Be Necessary
Filing Tax Extensions: Understanding Its Pros and Cons
What Is a Tax Extension?
A tax extension is a provision granted to both individual taxpayers and businesses who are unable to file a tax return by the due date. This, however, does not include giving the same favor to the payment of taxes owed.
Before filling out the request form and sending it to the IRS, make sure you understand the impact filing an extension for taxes will have on you. Not being aware of relevant details involved in obtaining an extension may end up hurting you financially.
Pro: You Gain a Six-Month Extension on the Filing Deadline
For many people, filing their taxes takes more than filling out a simple 1040-EZ form. You may be missing one or more copies of W-2s from the work you did throughout the year and you’re waiting to receive a replacement.
A sudden illness or natural disaster can end up disrupting your life and prevent you from filing by the deadline.
Whatever the reason, an extra six months can be extremely beneficial. You receive the time needed to make sure all paperwork is in order and that your information is filled in correctly.
It’s better to request the extra time if you need it. Making a mistake in your haste to beat the filing deadline could end result in you being audited because of the inclusion of bad information.
Con: You Do NOT Gain an Extension on the Payment Deadline
It’s not a good idea to file for a tax extension if you’re only looking to avoid making tax payments.
A tax extension just gives you extra time to submit your tax forms with the IRS. You’re still required to pay any taxes you owe by the deadline of the tax year for which you’re filing.
You will be assessed a penalty of 0.5% of any outstanding balance until it’s paid off.
The IRS makes allowances for those needing more time to pay taxes as well. Go ahead and file your tax forms, then request a payment installment plan for what you owe.
You’re allowed to have more than one going at any given time. Make sure you have the funds available each month to make your payments and avoid accruing additional penalties.
Pro: Anyone Can Obtain a Tax Extension
Some people mistakenly think they won’t qualify for a tax extension. Any eligible U.S. taxpayer qualifies.
The only reason you might end up rejected is if you had faulty data on your tax form like a wrong social security number. Even better, you don’t have to give a reason for why you need a tax extension.
It’s better to file for the extension than miss the deadline altogether.
The IRS assesses penalties of 5% of what you owe for each month, up to 25% maximum, if you don’t submit your tax return. That adds up quickly and can easily put you in a deep financial hole.
Pro: The Tax Extension Request Process Is Simple
You can obtain a tax filing extension using one of the following methods:
- Fill out Form 4868 online – You can navigate to the IRS website on any device and complete this form electronically.
- Send in Form 4868 by mail – The IRS also accepts the paper version through the mail. You may want to ensure you get confirmation once your form has been delivered versus just sending it through the regular mail.
- Pay Your Taxes – Making a full or partial payment of the taxes you expect to owe through the IRS’s Electronic Federal Tax Payment System (EFTPS) automatically extends your filing deadline. Make sure you go back and pay any additional monies owed once you file if your payment doesn’t cover the full balance.
Pro: You Reduce Your Chances of Being Audited
The later you file your taxes, the less likely it is the IRS will audit you. The IRS must complete a certain number of random audits throughout the year.
It’s possible to entirely avoid being targeted in one of these audits if you don’t submit your return until November.
Again, that doesn’t mean you should use a tax extension as a way of dodging paying what you owe. You may still be flagged for any discrepancies on your return.
The important thing should be validating everything on your form regardless of when you turn it in.
Con: It May Not Be Necessary
Some people fall into the habit of filing for an extension even if they don’t need it. Why put off obtaining a tax refund you’re due?
If you can meet your current financial obligations and have all necessary paperwork on hand, it can be a burden off your mind to go ahead and file your taxes during the regular April deadline.
Now that you understand the main pros and cons of filing for a tax extension, you’re in a better position to make the best decision for yourself.
It’s always better to stay ahead of any tax matters. You don’t want to let these things slide and end up on the wrong side of the IRS!
Have you already started preparing for tax season? Do you think you need to avail of a tax extension? Let’s talk about it in the comments section below.