There are a number of advantages to filing a tax extension, although these benefits may not be immediately obvious to the average taxpayer. This article discusses some of the biggest advantages to obtaining a tax extension, whether you need one or not.
Extend Your Filing Period
The first and most evident advantage of filing a tax extension is that you get more time to file your income tax return. For those of us with busy and complicated lives, filing an annual return a few months after the tax year ends is just not doable. Luckily, the IRS allows individuals and businesses to request a filing extension.
An extension is the best solution – whether you need more time just to gather the necessary documents because you are a frequent investor, business entrepreneur, or you have a complicated financial situation. For others, it may simply be that the beginning of the year is a much busier time in their personal lives and worrying about meeting the filing deadline can be a hassle. On top of that, the chaos that comes with tax season (e.g., overbooked tax preparers and long lines at the Post Office) can make a tax extension well worth it.
A personal tax extension (IRS Form 4868) gives you 6 extra months to file your return, which moves the filing due date from April 15 to October 15. A business tax extension (IRS Form 7004) can give you an extra 5 or 6 months (depending on your business entity type) to file your business tax return.
Avoid Late Fees
Another huge advantage of an extension is that you will avoid the IRS’ late filing penalties, which are considerably high. If you fail to file on time and you owe tax, the IRS will charge a combined penalty of 5% (4.5% for late filing and 0.5% for late payment) of your unpaid tax per month. If your tax return is more than 60 days overdue, the minimum late filing penalty is $135.
It’s Easy and Everyone Qualifies
The best part about the tax extension is that it is available to ALL taxpayers regardless of income or status. You don’t need to sign the extension application or provide a reason for your request – that’s why the IRS calls them “automatic” extensions. In fact, over 12 million taxpayers file extensions every year.
The fastest and easiest way to get a tax extension is to e-file. Within minutes, you can e-file a personal or business extension online and it will be transmitted directly to the IRS. Make sure you use an Authorized IRS e-file Provider so your sensitive data is safe.
Potential Avoidance of Tax Audits
There are two ways that a tax extension could help you avoid a potential audit. The first is simply that a complete and accurate return is the best way to avoid audit flags. If you submit an incomplete or inaccurate return simply because you do not have the right information, it will be flagged by the IRS and sent to the audit department.
Second, many tax professionals speculate that the IRS has an audit quota, which is usually filled by the end of April. If you get a tax extension and file your return a few months after the original April deadline, you can avoid the highest season for audits. However, you must ensure that your tax return is properly prepared when you do file, because inaccurate information will almost always get noticed by the IRS.
Consider filing a tax extension to avoid late filing penalties and to give yourself more time to file a return that will not raise IRS suspicion.