Filing your taxes is never anyone’s definition of fun; however, in some circumstances, it can be downright stressful—especially if you are approaching the deadline and haven’t had time to go through all of the aspects you need to consider. If you feel like you need more time to prepare your taxes, don’t despair. There is a way to get an extension, but, before you do, here are a few things you might want to consider.
The Pros and Cons of filing for an extension:
Pro: you avoid those extra fees
If you don’t file for an extension and neglect to file your return on time, any unpaid Federal taxes are subject to interest, and you can be charged a failure to file penalty. If you know you won’t be able to file your return on time, filing for an extension can potentially save you money.
Con: more paperwork to fill out
If you haven’t filed your return yet because you simply abhor doing paperwork, then this might not be the best solution for you. You have to complete and file a form requesting an extension before you will be considered, and if you don’t fill the form out properly the first time, you have a limited number of days to fill it out properly and re-file or the request will be declined.
Pro: you get more time to prepare your return
Once accepted, you get an additional 6 months to complete and submit your return. This extra time can be life-saving for businesses and individuals who have complicated returns to navigate, or who simply have not had the time to gather up all of that paperwork.
Con: you don’t get an extension on your payments
If you already owe or know you will end up owing money to the IRS, you still have to make your payments on time, even if you get the extension on submitting your return. There are programs available that can help you calculate how much your payments will be, though, so you can make them on time.
Pro: an extension can preserve your refunds
There is a three year statute of limitations for receiving an IRS refund; filing for an extension extends the refund deadline by six months as well, so you can still receive your refund even if you get behind in filing your return.
Con: more time isn’t always a blessing
If you put off filing your return because your schedule didn’t allow you enough time to go through all the paperwork, make sure the extension falls within a time frame that will work better for you. If the next 6 months look like they are going to be even more crazy, it may actually be more productive to find a service that can help you to submit on time so you don’t have to worry about it.
Pro: an extension allows more time to consider the various inclusions
If you are self-employed, the extra 6 months can allow you enough time to fund your retirement plan. You can also re-characterize your IRA contribution in that time, you have more time to improve the accuracy of your return, and having a little extra time can help you reduce your tax preparation fees. An extra 6 months can make a pretty significant difference if you use your time wisely.
Con: not everyone is eligible for a tax extension
Make sure you follow all the guidelines when it comes to filing for an extension, and file early so you still have time to submit your return if you don’t get extension approval.
Pro: filing for an extension is easy
If you think you can benefit from a 6 month extension, then there is no harm in filing for an extension on your tax return. It is relatively easy: simply fill out the requested forms accurately. Individual taxpayers use Form 4868 (or you can file the extension online), and businesses use Form 7004. If you file online you will also receive a confirmation code that the request has been received.
There are many tax services available that can help ensure you complete the forms as required. However, remember that if you are granted an extension and discover you do not meet the requirements of filing a return, submit one anyways. After granting an extension, the IRS may assume you need to file a return and ask you to file one.
This article was written by Phyllis Stent, who feels that taxpayers should know the pros and cons of IRS tax extensions.
