There are times when April 15 just comes too early. You do have the option to file an extension for your tax return. An extension will give you an extra 6 months to get your return together and sent in. Like most things, there are pros and cons to filing the extension, it depends on what you are trying to accomplish.
Filing an extension does give you an extra 6 months to file your return. An extension does not extend to the money that you owe the IRS. If you don’t pay your taxes by the April 15 deadline you will get hit with interest and possible penalties, however, these fees are substantially less than if you were to just not file or file late without notifying the IRS of your need for more time via the extension. You can plan on a penalty of about 0.5% for every month that you don’t pay your taxes. This will go from the April 15 tax filing deadline until you do pay. You’ll also have to pay an 8% interest on the taxes that you pay late. Compared to the compounding interest of 5% every month that your taxes are late, with a maximum of 25%, you can see how filing an extension is a good idea. We extend our corporate tax clients by March 15, and individual tax clients upon request and if we haven’t heard from them before April 15.
If you are getting a refund, there is not a late fee involved. You are giving the IRS an interest free loan when you don’t claim your refund on time. They are already getting enough time with your money; there is no point in giving them anymore. However, if you just cannot get your refund done on time, an extension will give the extra 6 months to get it together and have all your ducks in a row. Don’t delay past that, though, because it is easy to forget and if you wait too long, the IRS can actually keep your money.
Doing your taxes late does have a couple benefits that you may not think of right away. If you are new with a CPA and need some time to get your tax strategy in place before you file, an extension would buy you enough time to strategize and plan without the burden of the deadline looming over you.
An extension also extends the time you have to fund a retirement account.
Another benefit of filing late is possibility that your chances of getting audited by the IRS drop. Although the IRS will never admit this is true, some people believe the later you file the less chance you have of being audited. Many people believe the closer to the October 15th deadline they file, the better. If you file late in the fall, the IRS may have already filled their quota of audits and won’t be looking any more. However, whenever you do file, the IRS has three years to audit your return, and if they are close to a deadline, they will pressure you into extending that deadline.
Filing an extension has many pros and some cons. It is a good tool to use if you find your back against the wall when the tax deadline rolls around. However in the long run, all you are really doing is delaying the inevitable.
Thinking about an extension? Before you make the decision, let’s talk. Call the tax professionals at (602) 569-1003 to set up a free tax consulting call.