Are Tax Extensions Worth It?
June 28th, 2017 by Bunch & Brock
For various reasons, sometimes it’s simply not possible to complete and file a tax return by the April deadline. Whether it’s because all the information isn’t available, the person filing has questions they aren’t sure how to answer or a myriad of other reasons, sometimes taxpayers find that the April deadline simply isn’t going to make the cut.
So what to do? While there are differences in opinion among professionals, the easiest solution, especially for an individual, is simply to file for an extension with Internal Revenue Service (IRS) form 4648. On one side of the argument, tax professionals say that by not filing in April an individual makes themself a target for an audit; the other side of the argument, however, points out that because the IRS has itself received massive cuts in labor and has reduced their number of audits, that is unlikely. Getting an extension is still a far better option than filing a return riddled with mistakes that may cause penalties. In some cases, experts have suggested the risk of being audited is actually higher because of mistakes than because of filing a later return.
Whatever the opinion, once the extension form is received by the IRS, the date the tax return is due is moved back to October 16 (for businesses the date is moved back to September 15). It is important to note, though, that although the return itself does not need to be filed until October, any taxes are still due by their April deadline.
Advantages and Disadvantages
One of the largest advantages in filing late is in penalties. The IRS essentially levies two penalties for late returns: the first is a five percent per month penalty for late returns. By requesting and being granted six additional months to file, the first penalty is negated, provided the October deadline for filing is met. The second penalty concerns taxes owed. For each month overdue, an extra one-half percent is charged. However, by paying the estimated taxes on time, even without filing a completed return, that penalty may be avoided, as well.
However, if the payment due is not on time in April, there are still significant penalties to be dealt with. According to Twin Cities Pioneer Press, if the payment is late, the penalty is a .5 percent charge on money owed each month, plus 4 percent interest per year, in addition to a 4.5 percent penalty per month for each month until the return is filed. The longer it takes to file the return and pay what is owed, the more penalties will accrue.
There is an easy solution to this as well, though. Installment plans are available if the bill owed is under $50,000. This plan will avoid penalties but must still absorb interest charged.
Simply put, the best, easiest solution, in most cases, is to file for an extension if you are not in a position to file tax returns on time, and to enter an installment plan if you are not able to pay on time. Otherwise, the penalties may turn out to be larger than the hassle.
For more than 35 years, the attorneys at Bunch and Brock have been serving our community and the entire state of Kentucky with their legal needs. We don’t just serve the community – we are members of it, and we look forward to helping our neighbors when they need us. If you have legal questions or would like to set up an appointment contact us online or call us at 859.254.5522.