What To Do After You File For a Tax Extension
There are lots of reasons why you might need to file an extension on your taxes, not the least of which may be related to the ways that the COVID-19 pandemic has upended routines, income streams and your ability to focus on your paperwork.
According to certified public accountant (CPA) Mark Puzdrak, there’s no reason to be worried that filing one puts you any more on the IRS’s radar than if you didn’t. “Many taxpayers use the extension for many reasons, and the IRS understands this. That is why they provide this option,” he explains.
When You Should File an Extension
The simplest answer to when you should file an extension is if you do not have all the paperwork prepared that you will need to do so, are still gathering funds for taxes you know you will owe or if you have concerns that the return you or a CPA prepared has problems that need a second opinion.
Some examples of when to file for an extension, according to Puzdrak, include: if you have an investment in a partnership or S-Corporation and haven’t received your K-1 form yet, if you are a small-business owner filing a Schedule C or S-Corporation and you want to take advantage of the tax breaks offered on a percentage of contributions made to a Self-Employed Pension Plan (SEP) or Solo 401(k). “Contributions to a SEP or Solo 401(k) can be made up until the due date of the return, including extensions.”
In some states, if you’re receiving a refund, you don’t need to file an extension. However, it’s important to check with the IRS or a local CPA first.
It’s an Extension To File Tax Returns, Not Pay Taxes
Beth Logan, EA, a federally licensed tax professional and author of three books on taxes, points out that an extension to file your tax return does not equal an extension to pay any taxes that you may owe. Speak to a CPA if you are having trouble paying what is owed, or talk to the IRS directly to set up a payment plan if you won’t be able to pay on time.
If you make an electronic payment of taxes owed along with your extension, Logan Allec, a CPA and founder of the personal finance site Money Done Right, encourages people not to simply trust that payment has been made. “Check your bank account in a couple days (after filing) to make sure the payment cleared.”
Check For State-Specific Extension Deadlines
“So if you live in a state that has a personal income tax, it’s important that you double check to see if you’ll have to file a separate return for your state tax return.”
File the Return
Once you have received a valid extension, you want to be sure you get your taxes completed in time for the new deadline. “You should now work on gathering the remaining missing information and decide if you will make a SEP or Solo 401(k) payment, if available,” Puzdrak says.
You will file IRS form 4868.
Be Sure To Receive Confirmation When You Do File
After you file your extension, Allec urges you to “keep an eye out for a confirmation from your tax software that your e-filed extension was accepted by the IRS.” Or, ask your CPA to provide you with that confirmation.
If you made any sort of mistake in filing your extension, such as a mistyped Social Security number, it could cause your extension to be rejected, and you’d have to refile.
Not only are extensions a good plan if you’re just not ready in time for the original date, Puzdrak says they can actually lower your risk for audit. “Too often taxpayers rush through the return process, usually on their own. Often, that leads to mistakes, and mistakes can lead to an audit. If you think you need more time, use it.”
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