For most Americans, April 15th brings with it a collective sigh of relief, marking the end of yet another tax season. Your personal income taxes are done and filed, and it is time to sit back and relax until next spring. Unless, of course, you filed an extension.
While the vast majority of taxpayers have their returns prepared and processed by the mid-April due date, approximately 10 million individual taxpayers choose to extend their taxes for another six months until October 15th. An option for everyone, tax extensions can be extremely useful, especially for those still collecting information as the deadline approaches. Here’s what you need to know about making the most of a tax extension.
What Is a Federal Tax Extension?
A tax extension is an IRS-authorized opportunity to delay the filing of your taxes for another six months and is claimed by filing Form 4868.
It is extremely important to note that this provides an extension of time to file, not an extension of time to pay. Form 4868 requires you to estimate taxes due and submit payment prior to the April 15th deadline, just like all other individual taxpayers in the US. If you do not, you may be charged interest or fees on the balance you submit in the fall.
If you choose to file an extension or your CPA suggests an extension, do your best to provide all tax information you receive as soon as possible. This will allow your tax preparer the opportunity to complete as much of your return as possible to help you understand what amount, if any, you should submit to the IRS.
Why Do I Need an Extension?
The reasons for extensions are vast, covering everything from a complex tax return that is too tedious to complete in the thick of tax season, to outstanding forms that are not received in time for the April 15th deadline. Taxpayers with partnership income reported on Schedule K-1, for example, may not receive all necessary paperwork by mid-April. The alternative is to file Form 1040 with data omitted and then file Form 1040X to amend at a later date, which is often significantly more complicated.
Extensions can offer other benefits as well, like extending the time available to contribute to certain retirement planning vehicles, like SEP IRAs.
Are There Any Downsides to Filing an Extension?
Downsides to filing an extension are extremely limited. An extension does not increase your chances of audit and will not trigger any extra scrutiny by the IRS.
If you do not pay on time, however, you may still owe fees after the IRS processes your return, so be sure to work with your CPA to determine an accurate estimate. If you make estimated payments, your CPA may suggest making your first payment at this time as well, even if your return has not yet been filed.
Taxes can be stressful and overwhelming, but Klein Hall CPAs can make income tax as easy as possible. With tax preparation and planning services for individuals and businesses alike, we’re prepared to help you make the best decisions for you. Contact us today to learn more!