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Pros and cons of filing a tax extension

It's likely your tax accountant will make fewer errors if you file an extension.

By Money Staff Apr 15, 2014 11:35AM

This post comes from Barbara Friedberg at partner site U.S. News & World Report.


U.S. News & World Report on MSN MoneyMost people think the reason to file a tax extension is because you are really pressed for time or have a colossal problem that forces you to postpone doing your taxes. Filing a tax extension may be looked upon as a character weakness because you can't get your taxes in on time.


Actually, filing a tax extension has its pros and cons, even for retirees, who may have more discretionary time than those working folks. Although, if you’re a procrastinator, filing an extension won't make doing your taxes any easier.


Calculating numbers for income tax return with pen and calculator © Stockbrokerxtra Images, PhotolibraryPersonally, I’ve filed a tax extension several times, and so far I have not seen my character tarnished or found that the extension sparked a tax audit.


Tax extension explanation

Filing a tax extension is not an extension to pay your income taxes. It is an extension of time to complete the tax paperwork such as the Form 1040, schedule A, B, C, D, E and all those other pesky forms we may need to prepare.


If you file an extension, you have until Oct. 15, 2014, in which to complete the tax return


And if you’re applying for a federal tax extension, make sure you investigate your state and local filing requirements as well.


Advantages of filing a tax extension

  1. After April 15, when the accountant is less stressed, it’s quite likely that she’ll be more thorough and accurate when preparing your return. My tax accountant likes me to file an extension. He is so busy from January to April that he prefers to spread out his work a bit by completing an extension for some of his clients. In my decades of paying taxes, I’ve found quite a few errors when reviewing the returns prepared by various accountants, and the errors seem to decline during those years when an extension is filed.
  2. If you work in a job where the work is seasonal, such as a teacher with summers off, then you may have more time in the summer to attend to tax preparation. If your schedule is swamped now, and you paid your taxes and any estimates due, it may be a good idea to postpone preparing the tax documents until you have more time.
  3. It doesn’t take much time to file an extension and there are several methods to pay the amount of tax owed. Download Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form includes all instructions to complete the form as well as methods of payment.
  4. It’s unlikely that filing a tax extension will trigger an audit. There is a common belief that if you file an extension, you’ll trigger an audit.

No one knows for sure what triggers an audit. Yet according to filelater.com, many financial professionals and accountants suspect the Internal Revenue Service has an “audit quota” which begins to fill around mid-April. Thus, if you file an extension, a large percent of the "audit quota" may be filled, making your chance of an audit less likely later than had you filed on time. Regardless of the quota, there’s little evidence that filing an extension will increase the chance of being audited.


Disadvantages of filing a tax extension

  1. You may not know exactly how much you owe without completing your tax return. And if you don’t pay the amount owed by April 15, you’ll be subject to late payment fees and penalties.
  2. You’ll wait longer for your tax refund. You can’t claim your refund until you file your taxes. If you don’t file your taxes until September or October, you won’t get your refund until the fall.
  3. If you miscalculate the amount of tax owed, you will still need to pay the penalties and fees. The late payment fee is 5 percent of the unpaid taxes for each month or partial month that the tax remains unpaid. And the penalty begins to accrue the day after the tax filing due date or April 16. Fortunately, the penalty is capped at 25 percent of your unpaid taxes.
  4. If you’re filing the extension because you’re a procrastinator, it won’t be any easier to file in July, August, September or October than it is in April. For those that fall into this category, you will be better off getting the taxes done and off your “to do” list by April 15.

So, at this last minute, if your taxes aren’t complete, don’t worry. Filing a tax extension might be the right solution for you.


More from U.S. News & World Report

VIDEO ON MSN MONEY

14Comments
Apr 15, 2014 3:29PM
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My spouse IS a "tax account".  After 100-plus hour weeks leading up to April 15, I would much prefer having a tax extension so my tax forms are filled out under less stressful circumstances.  And, yes, it has been filed!
Apr 15, 2014 1:46PM
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You have 3 1/2 months to file a simple form.  If your return is more complicated, hire a pro.  If your pro can't do it, hire a different pro.
Apr 15, 2014 7:16PM
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As my Mom passed away in Feb. @ the age of 96 yrs , Tax filing for her was VERY difficult. (& yes the 'Death & Taxes' phrase def applies) . What complicated things worse is she had Alzheimers, & I was her G/C for several yrs. What complicates things further is that once dead, I am no longer her Guardian !
.. However, I am not yet her Executor either, as the Court has not yet approved that status.
.. So, basically, she has No Guardian, no Executor, & she is DEAD.
.. Yet, the Government totally expects her TAXES to be PAID,, AND on TIME !!
you tell me 

Apr 15, 2014 5:00PM
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The IRS is America's biggest Ponzi scheme.


Taxes originated to be voluntary.


Now these idiots in DC piss off this money years before it is ever collected------------------------------

    it is called the NATIONAL  DEBT !!!


When the first fat butt takes the chimlets and momma to China-----------for a vacation-------------at taxpayer expense-----------------------that does not lower the  NATIONAL  DEBT !!!!!!

Apr 15, 2014 7:02PM
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Thank CONGRESS for writing the tax laws.
Apr 15, 2014 5:50PM
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I have filed for an extension every year since 1987.  See ya in October.
Apr 15, 2014 4:47PM
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Left out a real important pro for extensions. Many elections (options) can be made up to due date of return OR due date of extension, giving more time to determine the feasibility of such options ie you know more about your next years income in Oct than you do in April. A possible (but unlikely) con is that it extends the statute of limitations 6 Months.
Apr 15, 2014 1:48PM
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I paper filed for an extension a week ago, but have heard nothing.  I did my tax return a long time ago, but it was complex and now I think I should have it reviewed by an accountant, thus the reason for the extension request.
Apr 15, 2014 12:27PM
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This article says some wrong things.   Better take a mulligan  and try again.
Apr 15, 2014 1:11PM
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Come on now!  If you can find your tax prepares mistakes, then you should not be paying him to do your taxes.  Instead, you should save yourself some money and do it yourself! The entire income tax paperwork industry  in the U.S. is criminally outrageous.  If you are paying anyone to do your 1040, schedule A, and/or schedule B  then you are simply a moron and have an excuse!   Otherwise, not!
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