I’m a CPA: When Filing an Extension Helps — and When It Hurts
Written by
Martin Dasko
Edited by
Zuri Anderson
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Tax filing has officially started, and you have until Apr. 15 to get yours done. The good news is that the White House recently announced that the average tax refund could increase by $1,000 or more.
This means you may want to file your taxes on time to ensure the funds reach your account sooner. However, as always, there may be scenarios that prevent you from getting everything together on time.
GOBankingRates consulted two certified public accountants (CPAs) to determine when filing an extension helps and when it hurts so that you can make the best decision for your situation.
When Does Filing An Extension Help?
You Don’t Have All of Your Documents
“Filing an extension can be a smart move if you haven’t gathered all the necessary documents or need more time to prepare your tax return,” remarked Laurie Smith, a tax partner at Wiss. “An extension gives you an additional six months to file your return, but it’s important to note that it doesn’t extend the time to pay any taxes owed.”
Miguel Burgos, a CPA and TurboTax expert, noted that 1099s, K-1s, Form 8283 Noncash Charitable Contributions, among others, are examples of income or deduction-related forms that are often delayed or not sent on time to taxpayers. You don’t want to rush into filing your taxes if you don’t have everything in order.
You’re Out of Town or Unavailable
Burgos acknowledged that there may be circumstances in which a taxpayer can’t access tax software or a tax professional. You could be out of town or unavailable due to major life changes, such as the death of a loved one.
You’re in a Federally Declared Disaster Area
Burgos noted that when the taxpayer has been affected by a disaster in a federally declared disaster area, there’s no need to file a form requesting an extension. He warned that you may want to consult IRS online resources to determine if the address on your return is in a federally declared disaster area.
When Does Filing an Extension Hurt?
You Don’t Have the Funds
Smith acknowledged that if you don’t have the funds to pay your taxes by the deadline, it’s still crucial to file your return on time to avoid the failure-to-file penalty.
“The IRS offers payment plans that allow you to pay your taxes over time,” she added. “You can apply for a short-term payment plan if you can pay within 120 days, or a long-term installment agreement if you need more time. “
She stressed that it’s better to pay as much as you can by the deadline to minimize penalties and interest. Burgos added that a tax extension gives the taxpayers additional time to file, not necessarily more time to pay.
You’re Expecting a Refund
“Although it may seem convenient to have additional time to file your taxes, the IRS can’t process any refund until a tax return is filed,” shared Burgos.
This means that the sooner you file your taxes, the sooner you can receive your funds. You don’t want to end up waiting for months to receive your money.
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