The pros and cons of filing a tax extension gas x reviews ratings

Provides Extra Time for Self-Employed Persons to Fund a Retirement Plan: Self-employed persons may want to fund a SEP-IRA, solo 401(k) or SIMPLE-IRA plan for themselves. Filing an extension provides these taxpayers with an extra six months to fund their retirement plan. Note: solo 401(k) and SIMPLE plans need to be set up during the tax year, but actually funding the plan can occur as late as the extended deadline for the previous tax year. With a SEP-IRA, however, entrepreneurs can open and fund a SEP-IRA for the previous year by the extended deadline as long as they filed an extension.

Additional Time to Recharacterize an IRA Contribution: As long as your IRA is funded by the April deadline, you can change the nature of the IRA by the October extended deadline. Essentially, you can turn your traditional IRA contribution into a Roth IRA, or a Roth IRA contribution into a traditional IRA contribution. This is helpful if you’re not sure if your eligible for one type of IRA. You can even use this provision to recharacterize a Roth conversion back to a traditional IRA.

Provides Additional Time to Make Various Elections on Your Tax Return: There are a wide variety of decisions that can be made on the tax return, such as deciding whether to depreciate equipment or take a Section 179 deduction, and whether to carryback or forward any business losses. Those decisions must be made when the tax return is filed. Filing an extension gives you extra time to make those decisions.

Filing an Extension Can Improve the Accuracy of Your Return: There’s an inevitable rush to get tax returns finished by the deadline, and taxpayers and accountants alike can make mistakes when rushing. With an extension, this gives you and your accountant extra time to go over the return and make sure everything is complete before sending in the return.

Extensions Can Help Reduce Your Tax Preparation Fees: Some accountants raise their fees in the weeks leading up to the deadline, only to drop their fees during the slow spring and summer months. Price-sensitive taxpayers may be able to save money by shifting their tax preparation to a time when their accountant is charging a lower fee.

Extra Time to File Doesn’t Mean Extra Time to Pay: An extension will give you extra time to file your return, but any tax is still due by the original deadline. An extension can help reduce penalties, but any outstanding balance will still be charged a late payment penalty (0.5 percent per month) and interest (right now at 3 percent annually).

Some People Aren’t Eligible for Extensions: Taxpayers who were approved for an offer in compromise must file by the April deadline during their five-year probationary period. If you don’t file by the April deadline, the IRS can revoke your offer-in-compromise and re-instate the original amount you owed.

No Extra Time for Married Couples to Switch From Joint to Separate Returns: Married taxpayers who filed jointly by the April deadline can, if they wish, switch to the married-filing-separately status by April 18 by amending their tax return.

No Extra Time to Make the Mark-To-Market Election for Professional Traders: Joe Kristan, CPA, explains. "If you qualify as a ‘trader,’ April [18] is your deadline for choosing whether to make the ‘mark-to-market election’ on your trading positions."

I’ve only seen this happen once, but I still want you to know about it. If you file an extension, the IRS might think you need to file a tax return. If you end up not filing a tax return (perhaps because you don’t meet the filing requirements), the IRS might get confused and ask you to file a return anyway, on the presupposition that you filed an extension to ask for additional time to file. Filing an Extension is Pretty Easy

Individual taxpayers can file an extension using Form 4868. Extensions can also be filed online, which has the benefit that you’ll receive a confirmation code from the IRS notifying you that your extension was received. Businesses request an extension using Form 7004.