What is an Extension & What Does it Mean for You?
Every year, millions of taxpayers request an extension on filing their return. It’s important to note that you don’t need a reason to file an extension. Once the paperwork is filed, the extension is automatic with no questions asked. Filing an extension is often to your advantage – especially this filing season. Guidance on the Tax Cuts and Jobs Act continues to be issued by the IRS that may impact your tax situation. Additionally, many people are still waiting for important tax information.
What Does an Extension do?
An extension allows more time to fully review and maximize opportunities related to the new tax law. The extension period for an individual return is six months. For most years, this means the due date for your individual tax return is extended from April 15 to October 15. In years where April 15 falls on a Saturday, Sunday, or holiday, the deadline for individual federal income tax returns is moved to the first succeeding day that is not a weekend or holiday. Below are a few common questions on filing extensions.
What are the Benefits of Filing a Tax Extension?
Filing for an extension can be a smart choice for many taxpayers. You can file for an automatic extension and enjoy six more months to get your documents in order and properly prepare your tax return. An extension is another tax tool available to all taxpayers to allow them to properly file their taxes and pay the correct amount due. Filing a correct return reduces the potential for having to file an amended return. It is often less expensive and easier to file an extension rather than rushing now with the possibility of needing to amend your return later.
Does an Extension Increase the Risk of an Audit?
Extending does not increase your likelihood of being audited by the IRS. There is no stigma attached to filing for an extension. The IRS will not hold it against you or mark your tax return for an audit. One of the best ways to avoid an audit is to ensure you have enough time to properly and accurately complete and review your tax return.
Does Filing for an Extension Delay Payments?
No – extensions only postpone the tax filing deadline. Any tax owed is still due on April 15. When filing Form 4868 to request an extension, you should also pay an estimate of any taxes due in order to avoid interest and penalties. Interest and any penalties start to accrue after the April 15 filing deadline.
Filing for an extension allows taxpayers to avoid a more punitive 5% per month penalty for late filing. In other words, it’s better to file an extension and try to come up with taxes due by October 15 (and pay a small penalty for late payment) than to not file for an extension and accrue a 5% per month penalty (in addition to interest) for late filing and late payment.