Are you stressed, anxious, or worried about getting everything for your tax return submitted by the April 15th deadline? You are not alone. Tax time can be tough, especially if you are a procrastinator, unorganized, or not good at dealing with the paper shuffle that comes with gathering all your necessary documents.
If these characteristics sound familiar to you, don’t fret! The IRS allows you to file for an extension, which gives you extra time to complete your tax return. However, you must be aware of what an extension does, and what it doesn’t do. While it might be the right choice for you this year, you need to consider carefully your options before you decide to file an extension.
Tax Extensions
If you file a tax extension, the IRS allows you additional time to submit your tax return, but no additional time to pay any taxes owed. You still must pay up by April 15. If you do not submit payment by this deadline, you will be faced with interest and penalty fees.
After filing an extension, your deadline is October 15 this year. It can be a welcome tool if you need more time to find all your needed documents, or if you need to take more time to review your return for accuracy.
When Does It Make Sense to File an Extension?
There are some legitimate reasons an extension is warranted, such as:
Missing Information. Maybe you have not received all your tax documents yet. This could include a W2, Schedule K-1 or forms 1099. There is no sense in filing if you do not have these documents because you can’t just guess on the right figures to include. If your employer hasn’t issued a 1099, contact them and ask for a digital copy to speed things up. Employers are required to send form 1099 by January 31 to all independent contractors or freelancers earning $600 or more. If you did not get yours, you need to seek out a way to get it. Maybe it’s in that pile of unopened mail stashed in the corner?
Note that earnings under $600 still must be included on Schedule C when filing taxes. If this gets confusing for you, trust the professionals at Adams Accounting Solutions, and we can work with you to accurately report such income appropriately.
Major Life Events. Did you have a wedding, a divorce, or a death in your household? This can affect how you submit your return. For example, when couples file jointly, often times they will fall into a more favorable tax bracket due to their combined earnings. This is a plus especially when one spouse earns a great deal more than the other.
As well, moving to a different state can be a tricky situation to navigate when it comes to tax preparation. You will likely need to file two state returns, and an extension provides you extra time.
Travel. Being out of town or out of the country can make it extremely difficult to gather all the necessary paperwork and meet with your tax professional. Don’t stress, just contact us at Adams Accounting Solutions, and we will help you get an extension filed. You can meet with us upon your return, and we will assist in getting everything submitted before the October 15 deadline.
Complex Tax Situations. If you have multiple income sources, they can be difficult to sort out and calculate, so an extension might be beneficial. Business owners and investors may need extra time to determine accurate deductions, credits, and taxes owed.
Late Tax Preparation. If you are a procrastinator and have put off starting your taxes until the last minute, or if you’ve turned your info over to your tax professional in an unorganized fashion at the last minute, an extension can alleviate mistakes. Rushing never makes sense, and the “haste makes waste” theory applies here.
How to File an Extension
If you decide to request an extension, call us at Adams Accounting Solutions, and we can assist you with the appropriate form and get it to the IRS by April 15. As well, we will determine what your tax liability is so you can pay that prior to April 15 to avoid interest and penalties.
Downsides of Filing an Extension
Extra time granted by filing an extension can be helpful but isn’t something you want to do each and every year.
As mentioned above, you still have to pay any tax liability by April 15, and if you do not do so, you will incur interest and penalties.
Of course, if you expect a tax refund, filing late means waiting longer to receive your payment from the IRS.
Knowing an extension will give you more time can sometimes be an easy reason to procrastinate. Don’t delay filing just because you’re putting this task off, you’ll still have to get it all done by October 15, so why not strive to meet the April deadline?
When the extension option is used wisely, it can help ensure a more accurate return and minimize the stress associated with tax season. However, there is no financial advantage because you still have to pay any taxes you owe by April 15 or pay interest and penalties.
