The grass is always greener on the other side, the old adage says. Filing for an extension for your taxes may give you more time, but there are always cons to every pro!
Extensions are made so that you have an opportunity to have more time to file your tax return. Typically the IRS automatically will grant an additional six months for you to file. However, even if you file for an extension, your payment for anything owed is still due the 15th of April. The extension may help reduce your penalties if you can't afford to pay the full amount on time.
So what are the benefits?
- Extra time (six months) to finish your return. Sometimes you just need a little extra time to tackle the unpleasant task of filing your taxes. Maybe you're waiting on documents to be mailed to you or need to organize deductions, either way more time can be a good thing.
- Reduce late penalties. The IRS typically issues two different types of late penalties, a late filing penalty and a late payment penalty. With an extension, you don't have to worry about a late filing penalty until October.
- Improve the accuracy of returns. When you're rushing before the deadline, mistakes are bound to happen. Having a little more time will make sure things are filled out accurately and completely to insure no errors are made! In addition, it will give your accountant more time to do things fully without being rushed as well.
- Extra time for those that are self-employed to fund retirement plans. People who are self-employed may be looking to fund a solo 401(k), a SEP-IRA, or a SIMPLE-IRA. When you extend your filing time, this gives you six extra months to fund the retirement plan of choice.
- Preserve your tax refunds, even if you file after the extended deadline. Even if you file several years late, there's a three-year deadline for receiving a refund check from the IRS. The original due date for it would be 3 years from the year you're supposed to have filed by. With an extension, it can be extended by six months which helps taxpayers receive their federal tax refund even if you get behind on your tax return.
- Help reduce fees from tax preparation. Some accountants raise fees during tax season as the deadline approaches, once the off season comes around those fees drop again. Taxpayers who are thriftier may find that filing for an extension helps them save money in the tax preparation department.
What's the other side of the fence on extensions?
- You still have to pay. Just because you got some extra time to file your return, doesn't mean that any tax due by the original deadline can go unpaid. Extensions can help reduce penalties, but anything that is outstanding will be late if not paid.
- You don't get more time to change your married filing status. You won't be able to switch from joint to separate returns from an extension. You can however switch to married-filing-separately by April 15th if you amend your return.
- Not everyone is eligible for extensions. Those taxpayers who were approved for an offer in compromise still must file by the April deadline if within the probationary period of five years. The IRS can revoke the offer in compromise if you do not file on time and will re-instate the original amount owed.
- Extensions don't give you more time for your IRA. Traditional IRAs and Roth IRAs still need to be in by the April deadline.
While there are pros and cons to everything in life, don't let wasting your tax return be one of your cons. Start getting things together in your life now!