As we’re just a few days away from the April 18 deadline for filing tax returns, and both taxpayers and tax preparers are gearing up for the final showdown, I am asked “what’s wrong with just filing an extension?” Unless your tax firm shuts down after the April deadline, my response to the extension question is “Why not?”
Let me preface this by saying that an extension, which will give you until October 15 to file your tax return, is NOT an extension to pay your taxes. If you believe you owe taxes, pay them by April 18, or you will incur penalties and interest. With that out of the way, I personally LOVE extensions. Here are some of the advantages:
- You now have more time to gather your tax documents. If you’re missing a document, you can take your time retrieving it to ensure that you’re reporting the correct amounts on the tax return. Rushing to estimate certain amounts can risk reporting incorrect numbers (and possibly inviting an IRS notice).
- You also have more time to come up with tax-saving deductions. I can’t tell you the amount of time a tax client left out charitable deductions, Vehicle License Fees, additional property taxes, etc., simply because they ran out of time to pull up those numbers! It’s even more important if you’re a business owner or landlord. An extension gives you time to go through your calendar to make sure you’re not missing tax-deductible mileage, meals or travel expenses.
- If you have investments in securities, like mutual funds, stocks, etc., it is NOT uncommon for the financial adviser to issue an amended 1099– sometimes as late as mid-March or later. If your investments include Limited Partnerships, your K-1 forms may not even come in until April or May, so in those cases, you don’t have a choice but to file an extension. Nothing is more frustrating (and costly) than receiving an amended 1099 AFTER you’ve filed your return. Then you have to pay your tax preparer to file an amended return.
- After the crunch season, your tax professional will be more relaxed and will be able to spend more time on your return. That reduces the possibility of error, as well as increase the possibility of finding more deductions (and of course, reducing your taxes).
- And finally, after tax season is when we tax accountants like to take our continuing education classes and attend various tax law and strategy seminars to maintain our licenses. I know after I return from a tax seminar, I am totally pumped, excited and ready to take on whatever new tax challenge the client brings before me!
A tax extension is NOT a bad word, or an admission of failure. If you need more time to make sure your tax return is accurate, complete, and that you only pay the taxes you’re legally obligated to pay, then “Extend On!”