Tax Extensions: What You Need To Know
STEPHEN SMALENBERGER, EA®
We’re quickly approaching the end of tax season. If you haven’t filed your return yet, what do you do? Maybe you’re a last second kind of person or maybe you’re waiting for that last document, like a K-1. Should you file an extension?
What is an extension?
A request to the IRS to grant you an additional six months. What was originally due in April is now due in October. You can file any time in between.
How an extension works:
You can file by paper or software. Or have your tax preparer file an extension for you too.
Some misconceptions about filing an extension:
That you get more time to pay.
While an extension does give you additional time to file it does NOT give you additional time to pay. If you know that you will owe or you have in the past, be sure to make a payment and then true up the numbers when you file your return. If you’ve overpaid you will get the funds back. Or if you’ve underpaid you’ll owe more.
That you’re creating a red flag for an audit:
You are not causing a red flag or a higher likelihood that you get audited by filing an extension.
There’s a cost with filing an extension:
There is not a cost to file an extension. You could actually save yourself money by taking the time to collect receipts or gather expenses to reduce your taxable income. Being thorough also reduces the likelihood for errors, thus reducing the need to amend your return. Also, if you’re self-employed it gives you more time to set up a retirement account like a SEP-IRA to reduce your taxes due by making a contribution.
If you find you’re fighting against time, file an extension. It’s available to you!