Is filing a tax extension the right choice?

Posted on June 29th, 2023

You might be asking yourself, when is a good time to file an extension? The IRS allows you to file an extension if you need more time to file your taxes. The extension unfortunately doesn’t keep you from having to pay your taxes due. To avoid possible penalties, you should estimate and pay your federal taxes by the deadline. It allows 6 more months to fully complete the tax return.

Here are some common reasons why it could be favorable to file an extension on your tax return.

UNEXPECTED CIRCUMSTANCES

Life happens and things are out of your control. Natural disasters, family emergencies, illness or death in the family and other major interruptions in the day to day life could easily lessen your ability to file in a timely manner. Filing an extension would allow you time to focus on your tax return and take some pressure off your shoulders.

WAITING ON ALL YOUR TAX INFORMATION

It's common that you are still waiting on documents, schedules and other paperwork to officially begin preparing your return. A lost W-2 or old address could hold up the process of getting your documents in time. A lot of times documents relating to your capital gains and/or stocks sold can take longer than expected. Small businesses may need to fully gather all record keeping for the business, and reconcile the books. It's crucial to have all pertinent tax documents, records, receipts etc in front of you to file the most accurate return possible. Filing an extension would allow time to get your affairs in order.

MAKING CHANGES TO A RETIREMENT PLAN

Reducing your taxable income is key. Making changes to a retirement plan or contributing to an IRA are tax deductible. The IRS allows you to "recharacterize" your Roth IRA back into a traditional IRA at any time before you file your tax return, which allows you to avoid paying tax on the balance. Since this conversion may take some time, a filing extension can eliminate your obligation to pay the tax.

SUMMARY

• If you’re unable to complete your tax return by the April 15 deadline (or later, if the 15th falls on a holiday or weekend), file Form 4868 by the deadline to obtain an extension to file your return.

• You aren’t required to explain why you need the extension. With the extension, you’ll have until October 15 (again, barring weekends or holidays) to file your federal tax return.

• Be sure to estimate the taxes you will owe and include a payment with your Form 4868. Filing Form 4868 provides you with an extension of time to file, but you still must pay 100% of the tax you owe by the original filing deadline to avoid interest and late payment penalties.

How To File an Extension

Extensions can easily be filed online. You'll receive a confirmation code from the IRS notifying you that your extension was received if you submit Form 4868 electronically.

Otherwise, you can just mail Form 4868 to the IRS. Make sure it's postmarked by the tax deadline. You can't file an extension after that date