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Why Filing a Tax Extension Might Be Right for You

April 4, 2023
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The IRS allows an extension to individual taxpayers, businesses, and estates that need more time to file their taxes. Taxpayers requesting a tax extension get an additional six months to file their returns. However, it is important to note that deferring payment without paying what you owe could result in interest charges and fees from the IRS. So it is imperative that you accurately estimate what you owe the IRS and pay that amount prior to the tax deadline.

Here are some reasons that one might chose to file a tax extension.

  • You Don’t Have All Your Tax and Financial Information Yet: If you own a small business, for example, you may still be working on your books, or you may be waiting for a letter confirming a charitable contribution. If you are waiting for information that you need to file your taxes accurately, it is best to defer tax filing.
  • You Are Trying to Deal With an Emergency That Prevents You From Calculating Your Taxable Income: Unexpected hospitalizations or chronic illness can cause difficulties in finishing and filing your returns by the original tax filing deadline. In this case, you should file for an extension to give yourself more time to finish your returns.
  • You Are Waiting to Receive Forms From a Partner or Any Other Organization: If you are a partner in a business firm and haven’t received your Schedule K-1 form yet, it’s perfectly okay to request an extension.
  • Incorrect Information: If your records don’t match those that you received from another organization, you may not have the time to get the corrected information for your records prior to filing your taxes.  Rather than submit inaccurate information, in this case it makes sense to request a tax extension.

Here Are Some Benefits of Filing an Extension:

  • Reduced Late Filing Penalties: There are two types of late penalties – 5 percent on tax due for every month or a fraction of a month and 0.5 percent of the tax owed after the due date, up to a maximum of 25 percent. By filing an extension, you will avoid one of these fines.
  • You Will Have Extra Time to Improve the Accuracy of Your Return: An extension gives you extra time to double-check your return for accuracy.
  • You Get More Time to Make Elections: When you file an extension, you get extra time to determine whether you qualify for certain credits, and if availing them is in your best interest.

Cons of Filing an Extension:

  • You’ll Have to Wait Longer For Your Tax Refund: You can’t claim your refund until you file your return. Assuming that you file your return by September or October, you may not get your refund until fall.
  • Extra Time to File is Not Extra Time to Pay: A tax extension does not give you more time to pay. If you do not pay the amount you owe, the IRS will impose late payment penalties and charge interest.

It’s important to remember that filing for an extension is not a way to avoid taxes but rather to buy extra time. It’s recommended that you consult with a tax professional or conduct research before filing an extension. Weigh the pros and the cons associated with filing an extension.  Then choice the option that is right for you.

Accolade Accounting

Accolade Accounting is a leading accounting firm in Georgia. Whether you want to set up a new accounting system or streamline an existing one, we can help. To talk to a tax professional near you, call 470-646-2663.

 

Until next time my friends,

Cheers!

JD Longino, CPA

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