In some ways, a tax extension is a gift from the Internal Revenue Service. Even though the tax filing date is more or less the same every year, it can still be hard to get all your ducks in a row in time to submit a return. Recognizing this, the IRS allows all taxpayers to receive an automatic six-month extension on their tax returns. But, you should still only file for an extension if you really need to.
For starters, even with an extension, you’re still legally required to pay the taxes you owe by your original tax filing date, which is April 18 this year. You also don’t want to get into the habit of constantly running behind on your tax filings. How can you tell if you really “need” an extension? Here are some reasons that may suffice.
You Aren’t Finished
The best reason for requesting an extension on your taxes is also the most basic: You simply aren’t done with your return. For whatever reason, if you haven’t completed your tax return by filing day, it’s a much better option to take the free, automatic extension rather than rushing your taxes to completion. If you file a return before you’re finished, in the best-case scenario, the taxing authority simply rejects your return. In the worst-case scenario, you could end up paying much more in taxes than you should have simply because you didn’t take the time to clean up your errors and/or take all of your available deductions.
You Don’t Have All of Your Documentation
Even if you personally have done all you need to do to file your tax return on time, sometimes things are beyond your control. One of the most common of these is missing or delayed documentation. Since you can’t file your taxes in a timely fashion without all of the appropriate documentation, sometimes completing your return becomes a waiting game. In addition to the W-2s or 1099s you may receive from your employers and clients, you’ll also have to wait to get dividend and interest statements and other forms showing income you may have received. If you invest in a partnership, for example, you’ll need to file information from Form K-1, and companies are notoriously slow about issuing those to taxpayers. But if you don’t have your forms, you can’t file an accurate tax return, so you may have to request an extension.
You Won’t Be in Town on Tax Filing Day
In the age of the internet, it’s true that you can theoretically file your taxes from anywhere. But the reality is that you’ll want to cross-reference your tax statements and personal records before you actually file your return. If you know you’re going to be out of town on tax filing day — particularly if you’ll be overseas or in an area with spotty internet reception — it pays to just take the extension and finish your taxes when you have all of the necessary information handy.
Your Return Has a Lot of Moving Parts
The more complicated your tax return is, the more likely you are to make a mistake. With a lot of moving parts, a tax return by definition takes longer to complete. Additionally, many parts of a complicated tax return are intermingled, meaning changes to one portion will alter other parts of it as a result. For example, many deductions are phased out or eliminated based on your adjusted gross income. If you start tinkering with your income or deductions on other sections of your return, it may very well affect your AGI, which would in turn affect how much of a deduction you’re allowed on another portion of your taxes. The bottom line is that returns with lots of moving parts take time to get correct. In most cases, a complicated return justifies taking an extension.
You’ve Never Filed Taxes Before
If you’ve never filed a tax return, it’s highly likely that the process will either be confusing and/or result in a number of errors on your first run-through. Take the time to learn what goes into a tax return and to triple-check that you have made no errors. Even if you’re using tax software to help you out, first-timers may consider requesting an extension just to take the time to get everything right. Nothing is more frightening for a first-time tax filer than to receive a letter from the IRS, so work on preventing that by ensuring you file an accurate return.
You’ve Had Major Changes in Your Life
Major life events nearly always translate into changes in your tax situation as well. Whether you get married, have a child, go to college, buy a new house or change your job, you may have a whole host of new tax deductions available to use. In some cases, such as if you receive a significant pay bump, you may find yourself in a new tax bracket, perhaps owing more taxes than you are currently withholding from your paycheck. Regardless of the results, it’s quite common to have a significantly different tax situation from year to year. In times like these, it’s often prudent to take an extension.
You’ve Been Deployed
If you’ve been deployed overseas as an active member of the U.S. military, an extension on your taxes is a relatively common procedure. Obviously, if you’re in an active fire zone, you’ve got lots more on your plate than simply filing your tax return, and Uncle Sam is fully aware of this. In fact, as an active duty member of the military, you won’t even have to request the tax extension yourself. Your command will automatically notify the IRS that you are on duty so that you can receive your automatic extension.
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