Millions of taxpayers file for an extension each year, and for good reason. Filing an extension comes at no cost or penalty and provides up to an extra six months to complete the tax return filing process. There are additional benefits and considerations for taxpayers to keep in mind as well.
For partnerships, particularly investment partnerships with complex tax returns, a tax extension provides the ability to avoid filing an amended tax return should there be unexpected K-1 changes. With an extension on file, partnerships can submit a “superseded” tax return, which may eliminate the potential of investors having to file their own amended tax returns, should these unanticipated changes occur after the partnership’s original filing. This also saves the CPA substantial time, which affects a partnership’s bottom line.
For individuals, it’s important to know that an extension of time to file a tax return does not grant additional time to pay taxes that would have been due as of the original filing due date. Taxpayers should estimate their tax liability and submit payment with their extension to avoid possible tax underpayment penalties and interest. It is easy to pay the amount due by using the IRS and State online secured ACH systems.
Keep in mind that the first quarter of the year is the busiest for tax preparers, and availability is further minimized as the April Tax Day approaches. Scheduling an appointment with a CPA during this period is difficult, especially for taxpayers who got a late start on gathering their tax documents. Filing after April allows tax accountants to focus more on the details, while having additional time to employ every feasible tax deduction.
It is also a little-known fact that the IRS tends to fill its audit quota in April when most people file their taxes. Waiting to file in September or October could reduce the odds of one’s tax return being selected for examination, which is when the IRS typically selects fewer returns for a potential examination.
A tax professional can file an extension electronically, using Form 4868 for individuals or Form 7004 for businesses. Consult your tax professional for assistance in preparing your extension and determining the amount of taxes due by the tax deadline.
Author, Jeff Spiegel, CPA
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties