Even though the tax deadline in the U.S. has been April 15 for more than fifty years, many Americans still scramble to get all their paperwork ready and can’t meet that deadline. Fortunately, the IRS allows you to file past April 15, if you request an income tax extension. An extension gives you an extra six months to file.
Reasons to File for an Income Tax Extension
Before going into the reasons for filing late, let’s mention one reason you should never ask for an income tax extension: because you don’t have enough money to pay your taxes on time. Lack of funds is not a good reason to file late. Pushing back the filing deadline means just that and only that. You will be filing all your paperwork after the deadline. Everyone still has to pay whatever taxes they owe by April 15, whether they file by that date or not.
The following are some common reasons for filing later:
You will be traveling or otherwise busy with a life event that prevents you from having enough time to prepare all your records, receipts and other tax time paperwork.
You haven’t received all the documents necessary to file. Yes, this occasionally happens. Or maybe you lost the W-2 your employer sent and you’re waiting for a replacement copy.
Filing later can save you money in tax preparer’s fees. Some accounting firms offer reduced rates in the slower summer months.
The Pros of Income Tax Extensions
The biggest advantage to filing late is that it will save you money in fees. The IRS charges a penalty, normally 5% per month on any unpaid tax balance if you miss the filing deadline. If you’re late getting your paperwork together, you can avoid this penalty by filing for an income tax extension.
Another benefit to filing after the deadline is it will give you six months to make sure all your return is accurate, you haven’t missed anything and it’s error-free.
The Cons of Filing an Income Tax Extension
The main disadvantage to filing your taxes past the deadline is that if you are owed a tax refund, it will be later too. You may receive your money as late as December of that year, or even early the following year.
Another reason to avoid using income tax extensions is the stress they can add to your life. Filing later means your tax paperwork is still hanging over your head for the following weeks or months.
Some tax professionals think filing later puts you at greater risk of being audited. The IRS doesn’t divulge its reasons for auditing taxpayers. However, as tax lawyer Robert Wood points out in his article “Does When You File Your 1040 Affect Your Audit Risk?” quite a lot of tax pros think filing for an income tax extension might make you more vulnerable to an audit.
If you do decide that filing later is the best choice for you, it’s a fairly straightforward process. Almost everyone will automatically be granted the six-month extension. You just need to fill out Form 4868 from the IRS.