Federal Tax Returns: Should I File an Extension?

Obtaining a six-month extension to file is relatively easy process, and there are legitimate reasons one might want to do so; however, there are also a few downsides to be aware of. If you need more time to file your federal income tax return next year, here’s what you should to know.

What Is an Extension of Time to File?

An extension of time to file is essentially a formal way to request additional time from the IRS to file your tax return, which, in 2024, will be due on April 18. Anyone can request an extension and you don’t have to explain why you’re asking for additional time. Individuals filing an extension are automatically granted an additional six months to file their tax returns. In 2024, the extended due date will be October 16.

Businesses of all stripes can also request an extension. In 2024, the extended deadline for S corporations and partnerships is September 15, and for C corporations it’s October 16. Special rules may apply if you serve in a combat zone, a qualified hazardous duty area, or live outside the United States. Please contact our office if you’re in need of more information.

The Upsides to Filing an Extension:

1. If you file an extension, you can avoid a late-filing penalty. If you file your return more than 60 days after the due date (or extended due date), the minimum penalty is the smaller of $435 or 100 percent of the unpaid tax.
2. You won’t have to pay a late filing or late-payment penalty if you show reasonable cause for not filing or paying in a timely fashion.
3. You can file a more accurate and complete tax return. Rather than rushing to prepare your return, and possibly making mistakes, you’ll have an extra six months to gather up required tax records. This is especially helpful if you’re still waiting for tax documents that haven’t arrived or need more time to organize your tax documents in support of various deductions.
4. If your tax return is complicated, your tax preparer, CPA, or accountant will have more time to work on your return to ensure you can take advantage of every tax credit and deduction you’re entitled to under the tax code.
5. Assuming you’re self-employed, you’ll have extra time to fund a retirement plan. Individual 401(k) plans must have been set up during the tax year for which you’re filing, but it’s possible to fund the plan as late as the extended due date for that year’s tax return. SEP IRA plans may be opened and funded for the tax year by the extended deadline as long as an extension has been filed.
6. Filing an extension preserves your ability to obtain a tax refund when you file past the extension due date. Filers have three years from the original due date (e.g., April 18, 2024) to claim a tax refund. However, if you file an extension, you’ll have an additional six months to claim your refund. In other words, the timeline for claiming refunds is extended accordingly.

It’s important to note that an extension of time to file your return does not grant you any extension of time to pay your taxes. In 2024, April 18 is the deadline for most to pay taxes owed and avoid penalty and interest charges.

The Downsides of Filing an Extension:

1. If you’re expecting a refund, you’ll have to wait longer than you would if you filed your return on time.
2. Extra time to file is not extra time to pay. If you don’t pay at least 98% of the tax due now, you’ll be liable for late-payment penalties and interest. If you cannot pay, the IRS has several options for payment arrangements. Please contact our office for details.
3. When you request an extension, you will need to estimate your tax due for the year based on information available at the time you file the extension. You must estimate your tax liability on this form and should also pay any amount due at the time. If you disregard this, your extension may be denied, and if you filed the extension at the last minute assuming it would be approved (but wasn’t), you may end up owing late filing penalties.
4. Dealing with your tax return won’t be any easier six months from now. You’ll still need to gather your receipts, bank records, retirement statements, and other tax documents – and ultimately file a return.

Support is a Mere Phone Call Away

If you need more time to prepare your federal tax return, then filing an extension of time to file might be the best decision. If you have any questions or are wondering whether you should file an extension, don’t hesitate to contact our office.