What does filing an extension do?

An extension is a form filed with the IRS to request additional time to file your federal tax return. The extension period is generally six months. So for personal tax returns normally due on April 15th, you would have until Oct. 15th to file. Be careful with your state tax returns, since not all states will automatically accept your federal tax extension.

Filing an extension grants you additional time to submit your complete and accurate return, but you still need to estimate whether you will owe any taxes and pay that estimated balance by the original due date.  As a former IRS agent, I like to remind clients of my favorite IRS mantra, “an extension to file is NOT an extension to pay.”

Extending your return allows you and your CPA more time to prepare your tax return to ensure filing of an accurate tax return. In many cases, you may still be waiting for additional information (e.g., Schedule K-1, corrected 1099s, etc.) to complete your return.

Why would your CPA encourage filing an extension?

If we recommend that you file an extension, it may be due to many reasons, such as:

  • The volume of data or complexity of certain transactions (e.g., sale of a rental property) on your return requires additional time.
  • The amount of time remaining in filing season is limited for the CPA to complete client returns by April 15th due to late arriving information.
  • Your tax returns may be affected by pending guidance due to tax reform.
  • Your CPA’s wife may have gone into labor and delivered twins earlier than expected (a distinct possibility!)

Am I more (or less) likely to be audited if I extend?

Simply put, no.  Anyone that tells you otherwise does NOT know the facts.  Not even active IRS agents are privy to the complex algorithms that determine which returns are pulled for examination.  It is better to file an extension and file an accurate return than file a potentially flawed return.

Other than procrastination, what are some GOOD reasons for extending?

It provides for additional time to file returns without penalty while waiting for missing information or tax documents (such as corrected 1099s). Your 1099s for investment income are due to you by January 31. This is a tough deadline for brokers, and if you have complicated investments, you may be expecting a corrected 1099 later in the year, which would require you to file an amended tax return if you filed early.

You may qualify for additional retirement planning opportunities or additional time to fund certain types of retirement plans (e.g., SEP IRA). It is often less expensive (and easier) to file an extension rather than rushing now, then possibly needing to amend your return later.

What if I don’t file an extension?

If you file after the tax deadline, the penalty for filing late is generally 5% of the unpaid taxes for each month or part of a month that a tax return is late.  Interest on the tax and penalty compounds daily.

If you need to file an extension, contact Tolonen Tax & Accounting today.  The process is simple, and generally will not cost you a dime in additional fees. But don’t forget an extension to file is not an extension to pay!