10 million personal filers and 5 million business owners request a tax extension each year. Taking an additional 6 months to complete your tax return may be a smart move. Obtaining an extension is as simple as filing IRS Form 4868. No reason needed. So why is everyone doing it? Here are 4 reasons a tax filing extension can be the right decision for your business this year.
File Correctly the First Time
With most tax forms not arriving until the end of January or middle of February, and some brokerage and investment tax forms not arriving until March, rushing to complete a return accurately by April 15 puts a lot of pressure on individuals and tax preparers. Small business owners must file a business tax return before they can even begin personal returns. Obtaining an extension gives up to 6 additional months of breathing room to ensure tax documents are received and correct. It also alleviates the pressure to rush filing a return. Rushing often produces mistakes. An extension also allows tax preparers to work on a return during off-peak times. That way, they can research and double-check to make sure all tax benefits are being utilized.
A Tax Extension Could Decrease Chance of Audit
Being audited by the IRS puts everyone on edge. The best way to avoid an audit is to ensure a return is filed correctly the first time. Amended returns, and returns with math and entry errors, are a few of the top reasons why a return will be flagged for a second look by the IRS. An extension will not be flagged for a review, but a rushed, incorrect return will.
Take Advantage of Retroactive Tax Law Changes
Tax laws are always changing. And occasionally, changes get made after the April 15 deadline for that tax year. If you request an extension, you may be able to take advantage of changes in the tax law without the added time, effort and expense of filing an amended return.
Take More Time to Consider IRA Conversions
Investors who choose to convert their traditional IRA to a Roth IRA, depending on what happens with the stock market, may reap a tax benefit by undoing the conversion before filing their tax returns. An extension provides an opportunity to watch market conditions so you can take the most beneficial action.
While there are many advantages to requesting a tax filing extension, it is vitally important to remember that the extension only applies to the filing of the return. Any taxes that are owed are still due by April 15. Form 4868 does not extend the time you have to pay. Penalties and interest still start accruing on April 16. Take advantage of the extra time to get the return done correctly, but if you think you owe, make that estimated payment or establish a payment plan before April 15.
Don’t be afraid to request an extension. It may be the smartest move you make with this year’s return.
Update: We are proud to share that Ten Key, Inc. was featured in an article on this subject that appeared in the Attleboro Sun-Chronicle!