March 13, 2023

10 Reasons to Consider Filing a Tax Extension

10 Reasons to Consider Filing a Tax Extension Tax & Business

Requesting an extension to file an income tax return can be confusing for some taxpayers, especially to those who have never requested one before. The following list highlights the complexity of modern tax compliance and how an extension can be helpful and beneficial.

There are so many intricate tax rules today, in comparison to 10+ years ago. The IRS actually prefers returns to be extended as it demonstrates that more time and due care has been taken to compile the information and complete the return. If you rush to file, you may miss out on some favorable deductions or tax credits. An extension will give you time to carefully review your records and consider your eligibility for all available deductions and tax credits.

If you are self-employed, an extension will grant you additional time to come up with funds to maximize your pension savings or to fund pension contributions for your employees, which can lower your tax liability.

Our lawmakers have recognized that meeting a fixed tax deadline can be difficult. An extension of time to file is legally granted to those who request one.

The government does not charge you for requesting an extension. Your preparer may or may not charge you.

An extension may allow the preparer more time to focus on your unique situation.

If you request a valid extension and then file your tax return and later discover an error, you can file a “superseding return” to correct the error. A superseding return replaces the previously filed tax return without the need for an amended tax return. This is particularly useful for partnerships and LLCs taxed as partnerships, which are now subject to a new and complex Administrative Adjustment process.

Tax deadlines are chaotic. You may face long lines at the post office or experience hardware or software problems. You may be waiting for your tax preparer to answer a question you have. Consider an extension and wait for the frenzy to pass.

Tax laws frequently change. Periodically, tax laws are modified or clarified after the tax deadline and the changes that benefit taxpayers can be retroactive. If you already filed, you would need to amend your tax return and incur the cost associated with the additional work if you engage a tax preparer.

An extension, properly completed and accurately reporting your expected tax, can save you the cost of a late filing penalty (up to 25% of the balance owed), especially if you need additional time to pay.

Form 1099s and K-1s are frequently corrected and revised. If you rushed to file and later receive a corrected 1099 or K-1, you will likely need to amend your original tax return.

Please note that filing an extension does not extend the time you have to pay your taxes. You should pay as much as you expect to owe, on or before the actual due date. If you underpay your tax, you will incur interest charges from the original due date until you pay the tax and interest in full. You could also be subject to penalties, but may be able to obtain relief for “reasonable cause” or for reporting your income with reasonable accuracy on your extension request form.

As the tax deadlines approach, consider the above and utilize the extension process to help your situation. For questions, please reach out to Marcum Tax professional.