For many clients around the tax deadline, “extension” is a frightening word. There are a lot of misconceptions surrounding the filing of tax extensions and most of them have a negative connotation. As the volume of information that the IRS requires various businesses to report to them electronically increases, the due dates for the submission of this information continues to get pushed out. The snowball effect is that taxpayers aren’t able to provide all of their tax information as timely as they had historically, resulting in less time for tax preparers to accurately prepare and file tax returns by the original due date. The IRS understands this and accordingly, they do not view the filing of an extension as a reason to increase their audits of these specific tax filings.
As a general rule, many CPA firms file extensions for between 45% and 55% of their individual clients. Those individuals that are filed on time typically have less complex tax returns or they are able to submit their tax information to the CPA at least 4 weeks prior to the deadline. It’s no secret that CPA’s put in a lot of hours during tax season, and even more as the deadline approaches. If you have a complicated tax return, or if you provided your CPA with your information fairly late in the season, you may be better off requesting that they file an extension so that they can take the appropriate time to carefully prepare and file your tax return when things are less hectic and stressful.
Although filing an extension doesn’t grant you any additional time to pay your income taxes (as these still have to be estimated and paid by the original due date), if effective tax planning has taken place, the amount should be reasonably estimable. The extension will provide for additional time to dot the I’s and cross the T’s, allow you time to review your tax return before submitting and typically leads to better dialogue with your CPA since you are having these conversations out of the peak time of year. If you have always viewed the filing of an extension as a bad thing, reconsider your perspective. The additional time and care allowed by the extension may just lead to fewer discrepancies, more thoughtful analysis of tax savings opportunities and an overall better relationship with your CPA.
Contact us to learn more about tax extensions or to get help with your tax planning and preparation.