Demystifying Tax Extensions: Why They’re Not as Scary as You Think

tax extensions 2024

As April 15th looms on the horizon, the collective anxiety surrounding tax season begins to peak. For many individuals, the mere mention of this date triggers a flurry of worry and stress. However, what if I told you that April 15th doesn’t have to be synonymous with panic and dread? Enter tax extensions – a valuable tool that can offer relief and flexibility to both taxpayers and tax professionals alike.

Let’s debunk some common myths surrounding tax extensions and shed light on why they might just be the solution you’ve been searching for.

Understanding “Tax Season”

Tax professionals refer to tax season as the time from January 1st to April 15th. It is a very hectic and demanding time. We are not like all firms as we do more tax planning than many and extend more clients than most. The idea is to have a more normal work-life balance for staff, work with less pressure, and overall do a better job for our clients.

Over the years, tax season has become more compressed. Last-minute tax law changes cause software delays, brokerage statements may not be sent until mid to late February, and K-1s sometimes don’t get finished until late. This can result in a flood of client documents during the last 4 weeks of tax season, just when we have to start working on extensions and last-minute questions around estimated payments for next year, IRA contributions, HSA contributions, etc. Needless to say, there is a lot of work in a very short time frame.

Understanding Tax Extensions

First and foremost, what exactly is a tax extension? Contrary to popular belief, filing for an extension does not mean postponing the inevitable or inviting IRS scrutiny. Instead, it provides taxpayers with additional time – typically six months – to gather necessary documentation, review their finances, and ensure accuracy in their tax filings.

Dispelling Myths of Tax Extensions

Myth #1: I Need A Good Reason to File For An Extension

The IRS does not require a reason. In fact, there is nowhere on the form that allows you to plead your case.

Myth #2: An Extension Increases My Chances of Being Audited by the IRS

There is no data supporting this fear. In fact, some have theorized that extending actually decreases audit risk because of the timing the IRS uses to select taxpayers for audit. The IRS is primarily concerned with accuracy and compliance, not the timing of your filing.

Myth #3: Extensions Result in Fees or Late Payment Penalties

Reality: There is no fee to the IRS or states for filing an extension. And we do not charge fees for continuing clients. While filing for an extension grants you more time to submit your return, it does not extend the deadline for paying any taxes owed. However, by estimating your tax liability and making a payment during the year or by the original due date, you can minimize or eliminate potential penalties and interest. This is part of our annual tax planning services and using this service can not only relieve a lot of anxiety but also provide a roadmap for long-term tax savings.

Myth #4: The Extension Process is Complicated

For us, it is actually a very easy process and can be done within a few minutes. We receive acceptance notifications electronically, within a day, usually within an hour.

Myth #5: If I Extend, I Won’t File Until October

The extended deadline to file is October 15th, but that doesn’t mean you can’t file April 16th or any time in between. We sometimes file extensions to give our clients a day or two to sign their e-file forms. Or clients need it because they are waiting on a K-1 or some other information. The best reason is that it allows us to do a better job in a less stressful environment without the pressure of deadlines and hundreds of other clients.

In our practice, we schedule out client work throughout the year so extensions become a normal process for us.

Myth #6: Nobody else files extensions, I will be singled out.

To the contrary, millions of people file extensions for their business and personal returns. A reported 10 million individuals filed extensions last year. Personally, I have been extending my own business and personal returns for at least 20 years.

Pros and Cons of Extending Your Tax Return

Pros:
  1. Reduced Stress: By extending your filing deadline, you gain breathing room to ensure your return is complete and accurate, alleviating the pressure of rushing through the process.
  2. Avoiding Errors: Rushing to meet the April 15th deadline can increase the likelihood of making mistakes on your tax return. With an extension, you have ample time to review your documents and seek professional assistance if needed.
  3. Maximizing Deductions: Extra time allows you to explore potential deductions and credits that you may have overlooked during the initial filing period, ultimately minimizing your tax liability.
Cons:
  1. Interest and Penalties: Failing to pay any taxes owed by the original due date may result in interest and penalties accruing over time. However with proper tax planning, this can be avoided.
  2. Delayed Refunds: While an extension grants you additional time to file, it also postpones any potential refund you may be entitled to receive.
Final Thoughts

In conclusion, filing for a tax extension is not a sign of procrastination or incompetence; rather, it’s a strategic decision that can benefit both taxpayers and tax professionals alike. By dispelling the myths surrounding extensions and weighing the pros and cons, individuals can make informed decisions that align with their financial needs and circumstances.

So, as April 15th approaches, remember that you have options. Embrace the flexibility afforded by tax extensions, and approach tax season with confidence and peace of mind. After all, when it comes to your finances, knowledge is power, and a well-informed decision today can lead to a brighter financial future tomorrow.

1 thought on “Demystifying Tax Extensions: Why They’re Not as Scary as You Think

  1. Tom Koby
    April 6, 2024 at 4:31 pm

    Thanks Steve, very well said. As I have told you before, I think you guys are taking a very smart approach to managing the workload.

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