The Time Is Now to Consider Filing an Extension
Since 1955, we have been filing tax returns on April 15th or on the next business day if it falls on a weekend of holiday. Everyone knows they need to file by that date, but you may be asking yourself, “Should I consider filing an extension?”
The Internal Revenue Service allows extension requests for individuals using Form 4868. This extension is automatic and does not require any explanations, but it must be filed by April 15th. Important note: While extensions allow the filing due date to be extended by six months, extensions do not extend the time to pay the taxes due. Holsinger can assist with calculating a projected tax due required to pay with your extension.
(Special rules apply to military serving in a combat zone or hazardous duty area or living outside the United States. If you fall into any of these categories, please contact our office)
Reasons to File an Extension
When you need more time
If you need to gather all necessary tax documents such as 1099’s and K-1’s, you should consider filing an Extension. You may also need more time to gather receipts and organize your deductions.
If you are self-employed and want to fund your SEP IRA, Solo 401(K) or SMPLE IRA having an extension provides you more time to fund your Retirement Plan.. Solo 401(K) and SIMPLE plans must be set up during the tax year, but funding can occur up to the extended due date. Self-employed individuals can open and fund a SEP-IRA for the previous year by the extended due date if they filed an extension.
If you want to make elections – filing an Extension gives your tax preparer more time to plan and to determine whether certain elections can be claimed on your return allowing you the advantage of a tax credit or deduction to which you are entitled
If you are traveling for business or if you are a snowbird and won’t be around for the filing deadline, an extension will allow you the flexibility of filing when you are back in town. Keep in mind, you will still need to pay any outstanding tax with the extension.
Minimizing penalties
If you file an extension and file on a timely basis, but fail to pay the tax due, you will be charged a Failure to Pay Penalty equal to 0.5% on any tax due per month, not to exceed 25% of your unpaid tax
If you fail to file your return before the extended due date you will be charged an additional penalty called the Failure to File Penalty which is equal to 5% per month on any tax due, not to exceed 25% of your unpaid taxes
Improve the accuracy of your return
Filing an Extension will give you an extra 6 month to gather your required tax documents that have not yet arrived and organize all support documents for deduction. This way you will provide a complete package to your tax preparer.
Take advantage of new tax laws
With all the new tax legislation, there may be retroactive changes to the tax law from which you can benefit. Filing an Extension may allow you to take advantage of such changes without the hassle of amending your return.
Preserve your tax refund
An Extension extends the statute of limitations for claiming a refund. Filers have three years from the original due date to claim a tax refund. Filing an extension gives you an additional 6 months (or three and a half years) to claim your refund.
Reasons to avoid Filing an Extension
Waiting for Refund
Filing later means, waiting longer if you are anticipating a refund
Late penalties
If you owe tax and do not pay what you owe with your extension, you will be liable for late payment penalties and interest
Delaying won’t make it go away
Delaying the inevitable will not make it easier 6 months down the road, you will still need to gather all tax documents and file a return.
Whatever the reason, filing an extension may be the right decision for you. If you are wondering whether you should file an extension, please don’t hesitate to contact our office.
This article was written and contributed by Chrystyna Silecky, a Senior Associate-Tax Services under the direction of Jessica Moslander, CPA, a Manager-Tax Services on our Holsinger P.C. team. This information is not meant as tax advice but merely an informative piece. We are happy to work with on your specific situation and tax position. For inquiries or more information, call us at 724-934-4880 or contact us to start a conversation.
