What Every Taxpayer Should Consider When Filing an Extension

For some taxpayers, filing an extension is just a given. Others find the concept unthinkable. For some, the decision to extend comes down to the wire.  Some taxpayers incorrectly believe that filing an extension will be a red flag on their return and draw attention to the IRS that will generate an audit.  Regardless of what has been done in the past, taxpayers should consider the options.  An extension of time to file should be considered for every tax period for which an extension is available.

Applying for extensions can provide several advantages.  One is expanding the window for filing superseding returns and providing protection from late-filing penalties.  A superseding return is different from an amended return.  A superseding return is one filed after the original return has been filed but before the due date of the return (including extensions).  An amended return is one filed after the original and after the due date of the return (including extensions).  A superseded return replaces the initially filed return; whereas, an amended return is in addition to the original return and both returns remain on file. The option to file a superseding return has several benefits in that it facilitates a tentative carryback or election. Another advantage is filing a more accurate return.  Rushing at the last minute or trying to file within a short time period can produce mistakes, even unintentional mistakes happen.  These mistakes can have significant consequences with additional tax penalties.

A filed extension can be obtained without making a payment. However, an extension to file is not an extension to pay the tax due.  If the taxpayer does not properly estimate the tax liability, the IRS could deny the extension and assess interest and penalty for the late payment.  Protection from the assessment of underpayment penalties is if at least 90% of the tax due on the tax forms has been timely paid in by the original due date of the filed returns.  Individual taxes are paid in via withholding, quarterly estimated tax payments, and extension payment.  Corporation taxes are paid in via quarterly estimated tax payments remitted via EFTPS.gov.


(SOURCE: IRS.gov and AICPA Tax Advisor)