March 20, 2020 update from the U.S National Treasury: In response to the COVID-19 coronavirus…
Many people don't know that they can request a tax-filing extension from the IRS to ask for additional time to file tax returns.
Tax extensions are not just for people who are running late in filing their taxes. There are several reasons why filing for a tax extension would be beneficial for anyone. Filing an extension is free, very easy to obtain, and the IRS will allow you up to 6 months to complete your taxes.
But is it wise to file for a tax extension? We're sharing the benefits and downfalls of filing for a tax extension to help you make your decision.
The Benefits of Filing for a Tax Extension
Sending a request for a tax-filing extension can have many benefits. Here are some reasons you might want to consider applying for a tax extension this year:
Avoid Late Penalties
IRS imposes late penalties for not filing taxes on time. It is understandable if you are falling behind and will be unable to file your taxes on time for any reason at all. This doesn't mean you will always have to pay late fees. If you ask for an extension, you may be able to avoid accruing any late penalties.
Improve Your Tax Filing Accuracy
After the start of the New Year, tax season begins, and it can feel like everyone is rushing to file their taxes by the deadline. Due to this, you, or your accountant, may end up making tax filing mistakes. Getting an extension can not only relieve you of the stress to file in time, but it can also allow you to take your time getting your documents in order. You also get a chance to work with your accountant at a time when they can focus more on you and your needs as opposed to handling hundreds of clients, and trying to finish all taxes by a deadline. This is a great option for people that are self-employed.
Avoid the Hectic Tax Season
Having more time to file can improve the accuracy of your return. Accountants and taxpayers are both extremely busy during tax season, and it is possible for mistakes to be made. During the tax season rush, many accountants will be overwhelmed and may miss important deductions that could save you money. Filing for an extension can help you avoid the mad rush and will allow you to take your time and make sure your taxes are filed correctly.
Avoid Extra Tax Preparation Fees
Most accountants maintain higher prices during tax season and hike up their prices even more on the week of the deadline. They tend to lower their prices significantly in the late spring and summertime. Filing your taxes with an accountant at that time could cost you much less. Having a tax extension also provides you additional time to make various elections on your tax return, as well as preserve your tax refunds if you file after the extended deadline.
The Downfalls of Filing for a Tax Extension
Although requesting a filing extension for some people may be a benefit, for others an extension may not actually be a good option. If you are considering filing for a tax extension, make sure you are aware of the downfalls.
Extra Time to File Doesn't Mean Extra Time to Pay
An extension will provide you with additional filing time, but if you owe taxes, it is still due by the original deadline. Although an extension can help reduce penalties and help you find more deductions, any outstanding balance will still be charged with a late payment penalty (0.5% per month) and interest (right now at 3% annually.)
An Extension Won't Give Married Couples Extra Time to Switch from Joint to Separate Returns
Married taxpayers who filed jointly by the April deadline can, if they wish, amend their tax filing status to married-filing-separately. But, this status must be amended by the standard filing date.
Not Everyone is Eligible For a Tax Filing Extension
Some taxpayers who requested an "Offer in Compromise" during previous filing periods must file by the April deadline during their five-year probationary period. Failure to file by the April deadline can result in the IRS revoking the offer and re-instate the original amount that was owed.
How To Request a Tax Filing Extension
If you've thoroughly considered the benefits and downfalls of requesting a tax-filing extension and have come to a conclusion, the remaining procedure is simple.
Extensions for tax filings can be found online. By accurately completing the IRS Tax Form 4868 (for personal tax returns) or IRS Tax Form 7004 (for business tax returns) you will be able to successfully file for your tax extension.
If you choose to submit Form 4868 electronically, you will receive a confirmation code from IRS once it has been received.
Make sure to keep the deadline for filing for a tax extension in mind. You will be unable to request an extension once the deadline has passed.
Contact an Experienced Raleigh Accountant
The firm of C.E. Thorn, CPA, PLLC has provided Raleigh area businesses with monthly accounting and end-of-year tax preparation for nearly 30 years. Call our office at 919-420-0092 or complete the online contact form for more information.