In an ideal world, we don’t have taxes.
In an ideal world with taxes we at least get them filed on time.
But ideal isn’t always realistic. Life happens, we get caught up doing other things, and next thing you know April is here and taxes are due.
So what happens when April comes knocking and you’re not ready? You file an extension! Or, even better, you let your accountant file the extension for you because that means there’s one less thing for you to worry about.
Need help filing your taxes? Call us!
Need help filing an extension? We got you!
Book a free discovery call with us.
What is an extension?
An extension gives you an additional 6 months to file your taxes without being penalized. Instead of having an April 15 (*April 18 for 2021) due date (for individuals), your tax filing due date gets pushed back to October 15. For corporations, the regular March 15 filing deadline gets extended to September 15.
Why should I file for an extension?
Well, besides the obvious extra 6 months you now have to file your return, here are a few more reasons you may want to file an extension…
- You now have more time to organize all of your tax information and make sure it’s correct.
- If you are waiting on a document (like a K1 from a business investment) you should file an extension because without all your tax information your tax return will be incomplete
- An extension of time to file your tax return also extends the contribution deadline for retirement accounts
- An extension lowers your audit risk. The IRS assumes that if you take longer to file your return it must mean you spent more time making sure it was accurate. We know that’s not always the case but that’s the logic they use.
- Filing an extension prevents you from owing late filing fees. If you file your taxes late without an extension, you could owe fees of up to 25% of the taxes you owe (that’s in addition to the actual amount of taxes you owe).
How do I file an extension?
You can request an automatic extension through the IRS website. If you work with a tax preparer, you can also ask them to file an extension for you.
When should I file an extension?
Extensions must be filed by the regular tax return deadline (April 15 for individuals, March 15 for corporations). It’s best to file your extension as soon as you know you won’t be able to file your return in time.
Are there any downsides to filing an extension?
There are two downsides to consider when filing an extension…
- Extensions extend your time to file but they do not extend your time to pay taxes. The IRS and state tax agencies expect you to pay at least 90% of your tax balance by the original tax filing deadline. If you end up owing more than 10% of your tax balance (meaning you did not withhold enough taxes and/or you did not make enough estimated tax payments) when you file your return, they will charge a .05% penalty (1/2%) each month payment is late. This means if you are expecting to owe and/or if you usually owe, you should make an estimated tax payment when you file your extension.
- Extending your tax return also extends the time frame in which the IRS could audit it. This is called “extending the statute of limitations”. Generally, the statute of limitations for the IRS expires three years from the due date of the return or the date it was filed, whichever is later. Since the clock doesn’t start ticking until your return is filed, you’re giving the IRS more time to look at your return when you file an extension.
Need help with taxes? You’ve come to the right place!
Book a discovery call with us today and let’s chat!