Tax extensions: Plenty to know, but nothing to fear

When it comes to paying income taxes, some people have fears that are causes for concern. In other cases, people worry about aspects of taxation that are not areas of risk but lead to reasons for trepidation.

Filing for extensions is an example of a tax situation that falls into the second category.

Individuals may not want to file for an extension on their income taxes, because they are afraid of being audited. They believe extensions are a signal to the IRS to investigate them, as surely something must be amiss if a person, partnership or business does not file its taxes by April 15.

In reality, though, this is not the case.

What are tax extensions and why do people request them?

Extensions are simply an additional time to file a tax return – not an extension of time to pay the tax – but they do give a taxpayer more time to submit an accurate return.

Why do people file extensions? Some of the reasons include:

• They have a complicated tax return, or perhaps have faced major life changes over the past year
• They cannot find all of their forms, receipts or charitable contribution documents
• They do not want to rush and forget something or make an error on their tax return
• They need more time to research tax laws (following elections, passing of new legislation, etc.)
• They are not going to be at home, or by a computer, around the time of the filing deadline

If people who file extensions do get audited more frequently, it is almost certainly because of the type of income and investments that these people tend to have, and not because they are requesting extra time to file.

Other extension details: The how and when

Individuals can request an extension to file either electronically, or by completing and mailing Form 4868. Once requested, the extension will be granted automatically.

The extension request needs to be submitted by the April filing date, which typically is April 15. However, in some years, the date is moved slightly due to weekends or holidays. For instance, the 2023 filing date is April 18.

Individuals who request an extension have until Oct. 15, or in this year’s case, until Oct. 16. For trusts, the extended filing date is Sept. 30. Partnerships and S corporations need to file by March 15 or request an extension, which gives them until Sept. 15.

There are also IRS extensions available due to extenuating circumstances in certain states. For instance, certain California residents who are able to claim a deduction loss due to the recent severe winter storms now have until Oct. 16 to file and pay their taxes.

Additionally, non-residents who have to file in the United States (i.e., U.S. citizens who are living abroad) can file an extension by April 15 (and they request it the same way as everyone else). Then, they are entitled to another extension until Dec. 15. This second request must come by letter, not by form.

Of course, there are individuals who do not have the money to pay their taxes. They should still file for an extension, because at least they will avoid a late filing penalty. (They will still face a late payment penalty, with interest. But they can avoid compiling that with the penalty for late filing.) And in the case of an overpayment, a refund will be issued once the tax return is filed.

If you would like to further discuss the benefits of tax extensions or the details surrounding your specific situation, connect with our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.