Why You Should File for an Extension on Your Taxes

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The deadline to file your 2013 tax return is just days away. Despite your best intentions, and that New Year’s resolution that this would finally be the year you get your finances organized, your taxes are far from being done.

Maybe you didn’t get that 1099-DIV from your brokerage account soon enough. Or you’ve been too swamped with work or other personal issues to find the time. Perhaps you just let time get away from you. That’s OK. It happens. What with the wonderful weather we’ve had this past winter, it’s completely understandable that you haven’t gotten around to doing your taxes during the past 105 days.

If you haven’t filed your 2013 taxes, you are not alone. According to the IRS, more than 11 million Americans filed for an extension of their 2012 taxes last year. I expect a similar number will do the same this year.

Frankly, there is no shame in filing for an extension. Most CPAs and tax preparers file extensions every year. Many self-employed people file extensions as well. I even know of at least one financial advisor that typically files for an extension on his taxes (the guy down the hall never gets his stuff done on time).

Four reasons to request an extension to file your 2013 tax return.

There are many reasons why you might need more time to file your taxes. The IRS doesn’t require anything specific or even ask why you need more time. Below are four possible reasons why you might need an extension to file your tax return.

  1. You simply need more time. If you are reading this now and still haven’t done your taxes, the odds of getting them done correctly and on time are getting smaller every day. Filing an extension gives you until October 15th to complete your taxes. However, you don’t have to wait until October 15th. Maybe you just need an extra weekend or two to get your paperwork together and double check the accuracy of your return. Filing an extension takes the pressure off getting everything done by April 15th and gives you some extra time to get your tax return done correctly.
  2. You don’t have the cash to fund your SEP. An extension gives you more time to come up with the cash to fund certain retirement plans. Simplified Employee Pensions, for example, may be funded up until your tax filing deadline plus extensions. For self-employed people who have SEPs this means October 15th. So, if the only thing keeping you from taking your maximum SEP contribution is an outstanding account receivable (or two), filing an extension may give you the time you need to fund your 2013 SEP and save thousands on your tax bill.
  3. You have had extenuating circumstances. A lot can happen over the course of a year. Health issues, family issues, a surge in business or work activity, maybe you bought or sold a home or small businesses, all these things take time and could prevent you from filing your tax return by the April 15th cutoff. Filing an extension is a legitimate and reasonable way to give yourself the extra time you need to complete your tax return.
  4. You recently decided to have a professional prepare your taxes – perhaps very recently. Of those who consider hiring a CPA or other professional to do their taxes, most probably don’t actually contact that CPA until March or so. By then most tax preparers are up to their eyeballs in tax returns for existing clients. Many won’t take new clients that late into tax season. Frequently they haven’t had a day off since mid-January, and they have tickets to get out of town for two weeks starting on April 16th . The only way to get them to do your taxes at this late date is to file an extension and ask them to complete your return when they get back. My advice would be to file your extension now, and try to get on their calendar for May.

If you decide to request an extension of your 2013 tax return, the IRS recommends Free File  as an easy way to electronically file form 4868. If, like me, you prefer to file with paper, simply download form 4868 from the IRS website, print it, and mail it in with a check for your estimated tax liability.

To complete the form, you will need to do an estimate or rough draft of your taxes. Remember, filing an extension to do your taxes is a request for more time to complete your return. It is not a free pass to delay paying your taxes. Whatever tax you owe is still due on April 15th, whether you file an extension or not. Penalties for not paying on time are 0.5% per month, plus interest. That’s not a huge amount for a single month, but it adds up if your tax bill is significant and you wait until October to pay.

Don’t forget about your state tax return. Generally, if you are going to file an extension for your Federal income tax return, you will file an extension on your state return as well. Minnesota residents need to file form M-13 which can be downloaded on the Minnesota Department of Revenue’s website.

If you haven’t completed your 2013 taxes yet, don’t worry. Take your time.

 

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