Should You Worry When You File for a Tax Extension?
The IRS has given us 3 more days to file a tax return this year due to an unusual bit of timing. Emancipation Day, an official public holiday in the District of Columbia usually falls on April 16, but when April 16 is a Saturday – which it is this year – Emancipation Day moves to the previous day (Friday) which happens to be the usual federal filing deadline of April 15. Therefore, the filing deadline for the majority of the nation has been moved to the following Monday, April 18, 2016. Residents in Maine and Massachusetts will have yet another day until April 19, 2016 to file because these states observe Patriots Day on April 18.
Even though the majority of us have the 3 extra days to complete and file our tax returns, many may still need additional time and will file for an extension. You can extend your deadline to file by six months using Form 4868. With an extension, your deadline to file a tax return is extended to October 17, 2016, but you still must pay your estimated tax due with the extension.
Many people have a lot of anxiety around filing an extension, stemming from some common misconceptions about the process. We have listed some of those misconceptions below and have included commentary to help you make a more informed decision about your choice to file an extension.
It will increase my risk of an audit.
There is no truth to this myth. Some say it increases, while others say it decreases the risk. The best reason to file an extension is to obtain additional time, allowing you to obtain professional advice and gather necessary reports to ensure you are filing an accurate return.
I will be on the IRS “watch list” or my return will be red-flagged by the IRS.
Failing to file or making mistakes on your tax return – honest or intentional- will cause an auditor to take notice. An honest mistake such as forgetting a digit of your Social Security Number or an intentional oversight such as misstating your income will raise a red flag with auditors, not an extension. Follow the IRS’s guidelines and process for filing an extension and take additional time to ensure your return is complete and correct.
There are penalties associated with filing an extension.
This is not a myth. There can be penalties associated with filing an extension if you don’t pay what you are estimated to owe by April 18, 2016. An extension does not give you an extended period of time to pay. If you have a tax liability, it must be paid by April 18 to avoid costly penalties and interest. The IRS will waive any penalties if you pay at least 90% of your tax bill up front and then submit the remainder with your formal return by October 15.
They say the only certain things in life are death and taxes, so do not delay the inevitable. If you must file an extension on April 18 use the extra time wisely. Work on gathering necessary information and obtaining answers to your questions. As a taxpayer, you can be sure of one thing: there are no more extensions for filing for 2015 tax returns after October 17, 2016.