With the looming April 18th tax deadline, many may find it difficult to gather the information to file their income tax return by the due date. Extensions have become common practice in recent years. Many people may not even receive their tax documents from brokers or other sources until mid-February or even later. This compresses the time frame for completing returns by the April deadline, and most firms have less accountants to tackle them.
The first rule to remember is that April 18th is a payment deadline not a filing deadline. If you need additional time, an automatic filing extension is available. Below are several considerations and benefits to filing for an extension. Just keep in mind that any projected tax liability is still due by the original due date in order to avoid penalties when your return is actually filed.
Benefits of Extending
- Get it Right the First Time – Extending provides additional time to ensure complete documentation is gathered to prepare your return. The extension provides time for those pesky corrected 1099’s on brokerage accounts to be received and incorporated into your original filing, rather than requiring your return to be amended. Amending returns 1) can be costly and time-consuming, 2) is an additional headache and worry, and 3) sometimes draws greater attention to your filing by the IRS.
- Opportunity for More Tax Savings – By extending your return, you are providing your accountant additional time to evaluate your information for added tax savings opportunities, and more forward-looking planning for the future. Additionally, certain planning opportunities are available through the extended deadline, which provides you additional time to gather funds for retirement contributions to a SEP Plan or employer contributions to 401k plans.
- More Attention to Your Situation – With an extension, it allows you to work with your accountant at a time when they can focus more on you and your needs, as opposed to rushing to complete all the work by the first deadline. Here at YHB, we value a year-round relationship with our clients, and understanding your unique goals and needs allows us to work more proactively with you. This is much more difficult to accomplish during the compression season prior to the filing deadline.
- Avoid the Risk of Being Late – Trying to rush to get your return completed by the April deadline may mean you end up actually missing the date altogether, resulting in potential late filing penalties. Making a decision to file an extension prior to 4/18 ensures you have that additional time and can prevent late filing penalties.
- There are No Penalties to Extend – The Government does not penalize taxpayers for extending, as long as they pay any projected tax liability on time. Additionally, the Government does not charge extra to extend your return, unless you do not make the appropriate payment by 4/18. (It is a myth extending your return increases your chance of an audit. Most audits by the IRS focus on areas aimed at closing the tax gap – so they are looking for underreporting of certain types of income and use algorithms to analyze key variances or reporting items in returns as part of their selection criteria. There is no evidence that extensions increase your risk of audit.)
How it Works
Although payments cannot be delayed, extending your return provides an additional 6 months to complete your taxes. If you extend, you or your accountant must project any tax liability, to prevent penalties to the greatest extent possible and calculate any quarterly estimate requirements for tax year 2023. Most extensions can be electronically filed, and any payment requirements may be made by you online.
And Then What?
Our team does not stop working on tax filings after the April 18th deadline. Once we have all your information, we will complete your return in a timely fashion, and we will keep you posted on any delays. Extensions provide additional time for a thorough review by our team and breathing room for you to gather necessary documents and, in many cases, avoid amended filings. A win-win for everyone.