Need some more time to get that 1040 filled out and signed? There are certain circumstances in which a person is not able to or willing to meet the April 15th deadline. In this case, there is an opportunity for you to get an extension. An extension is your way of asking the Internal Revenue Service for that extra time, extending your filing due date to October 15. If you aren’t already utilizing tax preparation services, you need to file these extensions yourself.
7 Situations You Should Consider Asking For An Extension
You can obtain a tax extension for any reason. They are granted automatically by the IRS as long as you complete Form 4868 and submit it by April 17. Here are seven reasons why you might want to file an extension.
1. Life events
Events in your life may be unexpected and can interfere with the filing of your tax returns. Sickness, death, births, divorces, unexpected job changes, and natural disasters all can stop you from focusing on your tax return.
2. Missing documents
The IRS has changed the due dates for returns such as 1099s, S-corps, and partnerships in 2018. They did this in an attempt to get the documentation to the taxpayer in a more timely basis. However, the 1099s, S-corps, and partnerships can also get automatic extensions.
Brokerage firms also may have issues in preparing their 1099s for clients. Often they don’t receive information in a timely manner to prepare their 1099s before sending them to the taxpayer.
3. More Time to Look at IRA Conversions
An extension can give you extra time to review IRA conversions to a Roth IRA. If there has been a change in the market after you made the conversion, it might be a good decision to take some time to determine if you should “recharacterize” your Roth back to a regular IRA.
4. Retroactive Tax Law Changes
Any tax law changes that happen after the April due date could affect your tax return. If there is an indication that one of these changes might affect your return, consider getting an extension to see what actually happens with that law. An extension might save you the time and effort to file an amended tax return after the law becomes effective.
5. Lower the Chance of Being Audited
Some tax professionals believe that filing an extension will lower your chance of being audited by the IRS. The IRS tries to meet their audit targets by starting earlier in the year. This implies that if your return is filed later in the season you would have a better chance of not being audited.
6. Fund a Retirement Plan
If you are self-employed, you may want to fund a SEP-IRA, solo 401(k) or Simple-IRA plan. Filing an extension gives you an extra six months to fund these plans. (Please contact your financial planner for more details.)
7. Preserves your tax refunds
If you don’t file your tax return by the extended due date, there is a three-year deadline for receiving a refund from the IRS. If you originally filed an extension, you get an additional six months to claim that refund.
Please note: While an extension gives you extra time to file your tax return, an extension does not give you extra time to pay your taxes. Your payments are still due by April 17. The amount you pay with the extension should be at least 90 percent of your actual tax liability. This will protect you from a failure-to-pay penalty.
How To File For an Extension
Individuals can file an extension fairly easily, all they need to do is fill out Form 4868 either electronically or by mail. When you fill this form out, you can obtain an additional six months before you have to file your taxes. If you would like to receive this form, please contact us.