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The Pros and Cons of Getting a Tax Extension

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Tax Extension
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With about two weeks to go to file your taxes, many tax-paying procrastinators are starting to get nervous about whether they'll be able to get their returns done by deadline time. Getting a six-month extension to file is easy to do and gives you some clear advantages if you're feeling crunched on time. But there are also some downsides to getting a tax extension. Let's take a look at the pros and cons of getting an extension from the IRS.

The Pros of Getting an Extension

1. It's easy and free.
All you have to do to get six extra months to file your taxes is to file a single form with the IRS. By completing IRS Form 4868, you'll automatically get until Oct. 15 to get your returns filed. There's no fee for the extension.

2. You'll avoid a late-filing penalty.
Ordinarily, if you don't file your return by April 15, you'll pay a penalty of 5 percent of the tax you owe for every month that you're late, with a maximum total penalty of 25 percent. Moreover, if your return is more than 60 days late, then the minimum penalty is either $135 or the balance of taxes you owe, whatever is smaller. If you file for an extension, however, you don't get charged a late filing penalty as long as you file by October.

3. Your accountant might actually have time for you.
Trying to get professional help during April is always a challenge as CPAs and other tax pros scurry to get all their clients' returns in. By extending, you can walk into your accountant's office in May and have a much better chance of getting an appointment.

4. An extension isn't an automatic audit red-flag.
Many taxpayers are afraid that by getting an extension, they're inviting scrutiny by the IRS. But most of the time, an extension reduces your audit risk because you're less likely to make the dumb mistakes that last-minute filers typically make.

5. You'll get more time to reverse a Roth conversion and take advantage of other obscure rules.
One quirk of the tax laws is that if you converted a regular retirement account to a Roth IRA during 2013, you can undo that conversion at any time before your 2013 return is due. By filing for an extension, you get another six months before you have to decide. Undoing a Roth conversion can save you taxes if the value of your investments has fallen since the conversion, and with the market at all-time highs, many fear a potential downturn could be coming soon.

In addition, there are other less commonly used rules, such as funding a self-employed retirement plan, that are tied to an extended filing deadline. Getting an extension gives you more time to get those tasks done as well.

The Cons of Getting an Extension

1. You have to wait longer for your refund.
If you're due a refund from the IRS, you can't claim it until you file your tax return. So even though extending gives you more time to file, it also lengthens the potential wait for your eventual refund check.

2. You'll still pay late-payment penalties and interest if you don't pay your tax now.
Even if you get an extension, you still have to pay the tax you owe by April 15. If you don't, you'll have to pay interest on the unpaid amount plus an extra 0.5 percent in penalties for every month that you're late. Those penalties are far less than the late-filing penalty, but they're big enough that it still makes sense to come up with a reasonable estimate of how much tax you'll owe and pay it when you file your extension.

3. It won't be any easier six months from now.
If you're prone to procrastination, the temptation after you file for an extension is simply to squander the next five months until the October deadline starts approaching. So if you need the push of having a deadline in order to get your taxes done, you'll probably be better off just biting the bullet and getting your returns filed now.

Get 'em done!
If you can't get your taxes done in the next week, then filing for an extension is likely your best move. But even if you do get an extension, don't wait until October to file. Get them done as soon as you can, and you'll be able to stop worrying about the IRS watching over your shoulder.



(This article was originally published April 9, 2013, and updated on April 2, 2014. Because some advice is fairly timeless. Happy filing!)

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Douglas

I'm not paying any more income taxes, or should I say that I'm not filing. I'm 70 without friends or family, a 20 year vet drawing SS and a military pension. Life companion died last year and no desire to find another yet it's unlawful to do myself in. What would they do, put the ashes or sorpse in jail? I have no property so there's not much they can get that'll hurt me. Take my freedom? Like we really have any. Freedom is an illusion.....free to do what? Some will say I'm depressed, personally, I'm a realist.

April 03 2014 at 11:36 PM Report abuse rate up rate down Reply
icarusart

After being unemployed for a very long time, trying to make ends meet, and collecting unemployment insurance, the FEDS still want me to pay $700 in income taxes. What income? I should hide my toaster and keyboard in another country like Zuckerbooger's friends do.

April 03 2014 at 9:33 PM Report abuse rate up rate down Reply
bkymllr

make sure you pay as much as possible. Michele Obama and her girls need more travel on Air Force One....

April 03 2014 at 8:01 PM Report abuse -2 rate up rate down Reply
texconn

I find it interesting but I am not surprised that everyone who made comments below either hate the president hates or paying taxes. My comment to them is this country would be better without them so why don't they find another country to live in.

April 03 2014 at 6:14 PM Report abuse -1 rate up rate down Reply
1 reply to texconn's comment
icarusart

I have 2 countries on the top of my list. Lets go.

April 03 2014 at 9:36 PM Report abuse rate up rate down Reply
cslinz62

Between my measly interest I earned last yr & my mineral checks, it came out to less than $300.00. I'm not filing.

April 03 2014 at 5:35 PM Report abuse +3 rate up rate down Reply
cslinz62

Between the measly interest I earned & my mineral rights checks, I made less than $300.00 dollars last yr. I'm not filing anything. If they want it that bad, contact me for it. Then I'll comply.

April 03 2014 at 5:30 PM Report abuse +3 rate up rate down Reply
Bill

I'm sure BO will give an extension after all he is good at that.

April 03 2014 at 4:13 PM Report abuse -2 rate up rate down Reply
charlie4562r

File for the Obama Care Extension, after isn't the IRS the ACA police?

April 03 2014 at 2:45 PM Report abuse -2 rate up rate down Reply
tmoschetti

"What if you can't finish your taxes on time?"

No problem, Emperor Obama will again dissregard our laws, and give you an extension just as he has with this "Destruction of American Healthcare Act."

Can't pay your premium, no problem your neighbor will help you.

April 03 2014 at 12:54 PM Report abuse -2 rate up rate down Reply
ae12wrangell

I will purposely file late. The same time the Government shutdown, well for that same number of days my checkbook is SHUTDOWN! Maybe by April 30 I'll get around to filing.

April 03 2014 at 11:11 AM Report abuse rate up rate down Reply