There are a variety of reasons for filing a tax extension; however, having an extra six months to complete the filing process would be at the top, particularly for the 2020 tax year. Aside from normal tweaks to tax laws, American taxpayers may need extra time to sift through the many changes made through the CARES Act and economic stimulus packages.
Filing an extension provides more time to gather documents to make sure every possible tax credit and deduction gets applied. It is so simple to file a tax extension that millions of taxpayers file personal or business extensions every year.
Who is eligible?
Every American taxpayer is eligible to file for a six-month extension. The IRS does not require an explanation to file. Simply fill out the appropriate extension form and submit it to the IRS by March 15th for most businesses, or April 15th for individuals.
What makes this a good year to file an extension?
With the passing of the Covid relief bills, tax laws and regulations have seen significant changes. Many of the changes that occurred during 2020 are still being interpreted and modified as the upcoming tax deadlines approach. An extension allows time to ensure all eligible new deductions or credits that could not be claimed before are being captured. In addition, the extension avoids having to amend a timely filing for a modification to all new rules, as well as any anticipated changes that could arise from any other legislative bills that may pass this year.
Investment partnerships and K-1s.
A tax extension offers more time to compile and organize tax information for investment 1099s and partnership K-1s. Plus, filing an extension might help prevent mistakes on tax forms made by rushing through a tax return while also allowing the taxpayer time to review the return with a tax professional. Essentially, taking more time to complete complex tax returns could result in a more beneficial tax return.
Might reduce the chance of an IRS audit.
It is a little-known fact that the IRS tends to fill its audit quota in April when most people file their taxes. Waiting to file in September or October could reduce the odds of being audited, as the IRS typically selects fewer returns for a potential examination.
More focused attention by tax preparers.
The first quarter of the year is the busiest for most tax preparers and becomes more hectic closer to April. It could be extremely difficult to book an appointment with a CPA during this period, especially for anyone who might not have felt motivated to get an earlier start on gathering their tax documents. Filing after April allows tax accountants to focus more on the details while having additional time to employ every feasible tax credit.
How do I file an extension?
Any tax professional can file an extension electronically, using Form 4868 or Form 7004, for either an individual or a business. Keep in mind that filing for an extension of time to file your tax return does not also extend your time to pay any tax liability you may have. It is easy to pay the amount due using the IRS and State online secured ACH systems. Please consult your tax professional for assistance in preparing your extension and determining the amount of taxes due by the tax deadline.
Author, Jeff Spiegel
Principal, Spiegel Accountancy Corp
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.