Pros and cons of filing a tax extension, Poughkeepsie New York
Pros and cons of filing a tax extension
Filing a request for a tax extension using IRS Form 4868 asks theInternal Revenue Service (IRS) to extend the time to tax file your personal tax return. An extension moves the deadline for submission of 15 April to 15 Oct.
An extension gives you additional time to tax file your return, but it does not give you any additional time to pay taxes that you may owe on that return. Payments are still payable until April 15, 2020 for fiscal year 2019, but an extension can at least aid in reducing your penalties if you can’t afford to pay in full for that period.
Approval is generally automatic
Most requests for extension will be honored automatically. You don’t even have to explain to the IRS why you need the extension. Just file the form. But file it in the proper manner. Check your Social Security number and other data. Wrong information can cause rare rejection.
Certain individuals, such as members of the armed forces serving abroad, receive an automatic extension without having to apply or file form 4868.
The benefits of ordering an extension
You may not have a choice in some circumstances, you cannot file until April 15th for one reason or the other, but there are the pros and cons associated with declaring an extension. On the additional side, it can save you a couple of stress and offers some other benefits also.
Extensions also provide additional time to file your gift tax return if you have been particularly generous during the year.
1.Keeping Tax Documents
Having an additional time to complete your return is often necessary if you are still waiting for tax documents to arrive in the mail or if you need more time to put your deductions in order.
2.It helps to reduce late penalties
The IRS imposes two types of delay penalties: 5% on any tax due for each month or fraction of a month that a tax return is filed late without an extension request, in addition to a 0.5% late payment penalty up to a maximum of 25%.
You will only have to deal with one of these if you request an extension, and even then only if your statement shows that taxes are due and you do not pay at the time you file Form 4868.
You will prevent the 5% per month late filing penalty, if you file to an extension, then File your statement within the extended deadline of October 15th The late filing penalty would not commence until October 15th, assuming that you don’t file by that time.
3.It preserves your tax refund
In some cases, some people end up filing several years late, and there is usually a three-year deadline to receive a refund check from the IRS if it turns out that you are due one. This three-year statute of limitations commences in the original April 15, 2020 deadline submission for the 2019 fiscal year.
The statute of limitations reimbursement is also extended for six months when you file for an extension. This can preserve the taxpayers’ ability to receive their federal tax refunds, even if they are behind with filing their tax returns.
4.Financing a Self-Employed Retirement Plan
Self-Employed people may want to fund SEP IRAs or IRA easy plans for themselves. Filing an extension provides these taxpayers with an additional six months to do so.
Simple plans must be set up during the fiscal year but in fact, the finance plan can occur as late as the extended term for the previous fiscal year. Independent contractors and other autonomous taxpayers can open and fund a SEP-IRA in the previous year within the extended period as long as they filed an extension.
5.Extra time for elections
Several decisions must be made when you are preparing your tax return, and it may take some work and perhaps meeting with a professional to determine if you are really fit to take deductions and credits and if you are really at your best interest. The presentation of an extension gives you extra time to meditate on it or to seek help.
6.Improving the accuracy of your return
There is an unavoidable rush to get tax returns completed within the April deadline, and taxpayers and accountants alike can make tax return mistakes that, when pressure is rushed and under. An extension provides you and / or your accountant extra time to go over your return to make sure everything is complete and accurate, before sending it out.
7.Reduce your tax preparation fees
Some accountants and even tax preparation software are free to raise their rates in the weeks up to the April deadline, only to leave them again during the slow spring and summer months. Price-sensitive taxpayers can potentially save money by shifting tax preparation to a time when their accountant is less busy and charging a lower fee.
8.Reduce the risk of an audit
An IRS becomes less and less probable as the year goes on. The IRS must carry out a number of audits each year, and the odds are that the agency has met this requirement by the time October rolls around. This is not to say that you do not yet have to be meticulously accurate when preparing your return, but the chances of decreasing precipitation if you make an error.
The disadvantages of asking for an extension
An extension is not a solution to all of your fiscal dilemmas. Some deadlines remain carved in stone, regardless of when you file your return.
There is no extra time to finance an IRA
Contributions to a traditional IRAs IRA and Roth are still due by the original April term, unless you are self-employed.
Switching Joint to separate Married Returns
Married taxpayers who file together before the April deadline still only have until April 15 to change their tax returns to switch to separately married filing status.
You can confuse the IRS
The IRS will likely think that you have to file a tax return if you request an extension. The agency may ask you to submit any form of return, because you have entered an extension to ask for additional time, so you ended up not filing, perhaps because you have realized that you do not meet the income requirements so it is just not important.
It can be to your benefit to file a tax return, even if you don’t have to. You can qualify for income tax credit if your income falls below the filing requirement. This is a refundable credit so the IRS will send the money if you don’t owe taxes, but not if you don’t file a claim to claim it.
You cannot modify the characterization of an IRA Contribution
You could alter the nature of your October IRA extended term before the enactment of tax cuts and Act jobs (TCJA), while your IRA was funded by the April term. You could essentially turn your traditional IRA contribution into a Roth IRA, or a Roth IRA contribution into a traditional IRA contribution, or even use this provision to modify the characterization of a Roth conversion loop to a traditional IRA.
Unfortunately, conversions made after this date cannot be characterized under the TCJA as of January 1, 2018.
Archiving an tax extension
Extensions can be simply filed online. You will receive a confirmation code from the IRS stating that the extension was received if you submit Form 4868 electronically Most reputable tax preparation software is set up to file an extension for you as well. Otherwise, you can simply submit form 4868 to the IRS. Just make sure it is stamped before April 15. You cannot file an tax extension after this date.