Advantages of Filing an Extension
Every year, more than 10 million taxpayers request an extension on filing their return. It’s important to note that you don’t need a reason to file an extension – it’s automatic, with no questions asked. Below are a few common questions on filing extensions.
Can An Extension Reduce The Risk Of An Audit?
One of the best ways to avoid an audit is to ensure you have enough time to properly and accurately complete your tax return – which may mean filing for an extension if you run out of time before April 15. Math errors and data entry errors are the most common reasons to flag a tax return for review by the IRS. These errors are also the easiest to avoid by carefully checking your tax return before submitting it to the IRS. After all, if the IRS is looking closely at your return due to a math error, the examiner might find other areas on your tax form that pique his/her curiosity.
One rumored advantage of filing an extension is bypassing the initial onslaught of tax returns that go through the normal selection process for an audit. By the time those tax returns with an extension are filed in October, the IRS examiners have met their “quota” of returns to flag for an audit or further review. Or so goes the theory. The IRS’s audit process is an opaque black box, and very few know the inner workings of the system. At the least, we can conclude there is no increased audit risk by filing in October after taking an extension, and there may possibly be a lower risk of audit when returns are filed after IRS examination quotas are met.
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, the taxpayer 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 will allow the taxpayer 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.
What are the Benefits To 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. 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. The automatic filing extension is just another tax tool available to all taxpayers to allow them to properly file their taxes and pay the correct amount due.
Be sure to contact us to discuss filing for an extension.