If you are not ready to file your tax return, you can file a tax extension. The IRS sets a mid-April deadline by which most of us must file and pay our taxes. In 2022, the deadline for filing taxes is April 18.
Read on learn more about tax extensions, good candidates for filing extensions, the advantages and disadvantages of this strategy, and how to file a tax extension step-by-step.
What is a tax extension?
A tax extension is simply a request to the IRS for more time to file your personal federal income tax return. If granted, a tax extension will last up to six months, moving your due date for the return from mid-April to mid-October of the same year. So for 2022, a tax extension would make October 17 your tax filing due date.
“Note that this only extends the deadline to file your return, not the deadline to pay your personal income taxes. Those are always due by mid-April,” explains Sarah York, an enrolled agent and tax expert for Keeper Tax in San Francisco.
Keep in mind that if you don’t pay your taxes on time, interest and penalties will begin to accrue, even with a tax filing extension in place.
Even if you don’t plan to pay your taxes owed by the mid-April deadline, it’s wise to provide the IRS with a good faith estimate of your taxes due.
“This is because the IRS can invalidate your extension if your tax estimate is not considered in good faith,” cautions Jasmine DiLucci, a tax attorney, CPA, and enrolled agent in Dallas. “If you want to extend the filing of your tax return but don’t yet know how much you owe, you can make an estimated tax payment at the time of the extension.”
Reasons for filing a tax extension
There are many good reasons to file a tax extension.
“The most common rationale is simply not being ready. Perhaps you are missing a form, waiting for your business tax return to be filed, or have lost track of time and were caught off guard by the filing deadline,” York notes. “Taxpayers going through particularly complicated tax years also regularly choose to extend to make sure they have enough time to calculate everything correctly.”
Paul Miller, managing partner and CPA with Miller & Co., LLP, cites other valid excuses for extending the tax filing deadline.
“Maybe you didn’t receive all your tax documents by the deadline. Perhaps you need extra time to fund your pension. Possibly your spouse passed away and you need an extension to file a joint return,” he says.
Be aware that you’ll be charged a penalty for filing late without an extension.
“If you owe taxes on your federal income tax return but file late without an extension, the late filing penalty is 5% per month up to 25% of the tax liability,” DiLucci says. “For example, if you owe $10,000 on your personal income tax return, now you would have up to a $2,500 penalty just for not filing an extension.”
Good candidates for filing a tax extension
Worthy prospects for extending their tax filing deadline are those who may need to amend or update their tax return or those who need additional time to prepare their return.
“Business owners with pass-through income are usually extended out of necessity since they have to wait for their business returns to be filed before they can file their personal returns,” adds York.
Those in the best position to extend are taxpayers who do not expect to owe any taxes or receive a refund. That’s because they don’t have to deal with penalties or interest that may be assessed.
The pros and cons of filing a tax extension
If you think you need to amend your tax return, seeking an extension allows you to file a superseded return – which means a new original tax return – rather than an amended return, according to DiLucci.
“If you find an error on your tax return after filing the original, but before the extended mid-October deadline, you can file a superseded return to replace the first version. The benefit is the IRS will process a superseded return more quickly,” she continues.
What’s more, there is a lower chance of an audit on a superseded return.
“Plus, a superseded return does not require highlighting the changes from the first version to the second version, which is required of an amended return,” DiLucci says.
The primary drawback of filing a tax extension is that it can also extend the statute of limitations of an IRS audit by an additional six months.
“The IRS usually has three years to audit you from the later of the due date of the original tax return or the date it was filed. If you file a tax extension you extend the due date of your return, the three years are also extended by six months,” DiLucci notes.
How to file a tax extension
The steps involved with filing a tax extension are relatively simple. Whether you do your taxes yourself or hire a professional, be sure to:
- Read and complete IRS form 4868 for an individual federal income tax return extension.
- Provide a good faith tax due estimate on your extension.
- Send the form and your good faith estimate via certified mail or e-file to the IRS. Or use tax filing software like TurboTax to file your extension.
“A tax expert is usually not needed for an extension, although it may be helpful to ensure it is properly e-filed with a good faith tax due estimate. Make sure to request proof of filing from your tax professional if you’ve entrusted them to do it for you,” recommends DiLucci.
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.
