It’s that time of year again. We call it “tax season part Deux.”
WHO CAN FILE AN EXTENSION
Both businesses and individuals can file a tax return extension. Business returns are usually due on March 15th while personal returns are due on April 15th. However, both businesses and individuals are allowed a six-month extension to file their tax return provided they file for an extension before the due date of the return. Businesses must file a form 7004 before March 15th, while an individual must file a form 4868 before April 15th. An individuals time to file is extended to October 15th, while a business has until September 15th to file its return.
DOES AN EXTENSION GIVE ME MORE TIME TO PAY MY TAX LIABILTY?
Some people are under the impression that filing an extension also gives them extended time to pay their tax bill. Unfortunately, that is not the case. Filing an extension only gives you additional time to file your return not additional time to pay your liability. The IRS will impose a failure to pay penalty if you do not pay your tax bill by March 15th for businesses and by April 15th for individuals. Your accountant (or you) should have sent a gestimate of what you think your liability was.
VALUE (BENEFIT) OF FILING AN EXTENSION
In addition to giving yourself or your business an additional six months to file your return, you will relieve yourself of the stress that comes with trying to pull all your tax documents together before the deadline. Less stress and more time will ensure you have enough time to include all the tax deductions available to you and enough time to review your return. Another benefit of filing an extension is that you avoid the failure-to-file penalty which is about 25% of the tax due. That is quite a bit of money if your tax bill is high.
THREE REASONS TO FILE AN EXTENSION
- Missing or Inaccurate Information
- You are unavailable during the tax season
- You run out of time to gather your information
MISSING OR INACCURATE INFORMATION
It is impossible to file an accurate return unless you have all the necessary and correct information. I have seen where a taxpayer received a 1099 containing several errors. In such a case, the 1099 may have to be reissued. If you do not receive the corrected form before the March 15th or April 15th deadline, filing an extension may be your best choice.
For those of you that read my posts, you know that I am a stickler for proper record keeping. Without proper record keeping, it is nearly impossible to have all the information you need at tax time. This means that you have to prepare both your financial statement and your tax return at the same time. Doing this will guarantee you are not taking advantage of all the deductions available to you.
YOU ARE UNAVAILABLE DURING THE TAX SEASON
Although the ability to file your return electronically is an option with today’s technology, not having your financial affairs in order before you leave town can cancel out the benefits of e-filing. This once again goes back to the importance of keeping good records during the year. Cloud accounting is a great way to make sure you can tend to your financial matters regardless of where you are. Not only can you record transactions from anywhere in the world, but you can also work simultaneously with your accountant and/or bookkeeper to ensure your records and financial statements are up to date and accurate.
YOU RUN OUT OF TIME TO GATHER YOUR INFORMATION
Sometimes “you just don’t have enough time to compile all your documents”. This is one of the most common reasons why people do not file their tax return by the initial due date (April 15th or March 15th). You keep telling yourself “I’ll get to it tomorrow” but tomorrow never comes and before you know it, it’s the eve of tax day. On the other hand, it could be that your accountant does not have enough time to prepare and submit your return by the due date because you did not provide him or her with your documents, as requested, two weeks before the March 15th or April 15th deadline. Whatever the case may be, filing an extension is the answer.
Now that you have some basic information about filing an extension, if you are one of the people that took advantage of the benefit, remember to file your business return by September 15th and your personal return by October 15th. Because October 15th falls on a Saturday this year, you will have until October 17th to file your extended personal return. Now that you have two additional days to file your personal return, you have no excuse not to get it done.