4 Reasons Why You Should File a Tax Extension
Filing a tax return can take a little while, especially if you want to do it right. The Internal Revenue Service (IRS) allows taxpayers to apply for a free six-month extension for whatever reason, and this is automatically granted as long as the relevant forms are completed on time. The extension extends the filing deadline to October 15 for personal tax returns, and September 15 for business tax returns. Filing for a tax extension doesn’t mean you’re unorganized, because sometimes it’s not your fault. In fact, filing for an extension can be really helpful.
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Missing or Unorganized Paperwork
It’s impossible to file an accurate tax return if you don’t have all the information you need. It’s not uncommon for some information returns, such as a Schedule K-1 or Form 1099 to arrive too late to return in time for the April deadline. Additionally, 1099 Forms sent by financial institutions and investment companies are sometimes inaccurate and corrections need to be made. Although they usually inform clients that something needs to be changed, it’s worth applying for an extension to cover your own back if this happens.
Reduce the Risk of Penalties
Failure-to-file or late tax returns can incur penalties of up to 25 percent of the tax due. If you file an extension and return the tax forms by the extended deadline, you’ll avoid any unwanted penalties. It’s important to note that extensions only give taxpayers more time to file, and not more time to pay any outstanding tax balance. Don’t get caught out on this. If you can’t pay an outstanding tax balance, the IRS offers some alternative payment options.
Tax Professionals are Unavailable
Sometimes things seem to work against us, like when your tax filer is out of town and unavailable before the final filing deadline. If you have an accountant who deals with your taxes, it’s likely they will be operating at full speed until April and might not have the time to ensure you have completed everything correctly and that you have utilized every tax benefit you’re entitled to. Some accountants also raise their fees in the stressful weeks leading up to the April deadline and then lower them as soon as it’s passed. Applying for an extension means your tax return will be thoroughly assessed by your accountant without any additional costs.
Tax Laws and Audits
Like any law, tax laws are always changing and applying for an extension means that you could be eligible for an upcoming tax deduction or a change in taxpayer status. Applying for an extension also lowers the potential for an audit, because IRS agents are legally required to audit a certain number of tax returns every year, and they usually do this by the first deadline in April.
As you’ve probably gauged, there are many reasons why filing for an extension is really useful, even if you don’t think you need one. Individual taxpayers can file for an extension online or use Form 4868, while businesses can use Form 7004.
Author: Thomas Jones
