First quarter is the busiest time of year for accountants – our entire annual timeline builds up to tax season, but somehow the tax deadlines creep up on millions of filers every year. The Internal Revenue Service reports that roughly 10 percent of Americans file an extension each year, which provides six extra months to file. But is it a smart move? Will you increase your chances to be audited? Could it help avoid unnecessary mistakes?
The pros:
• Late penalties are avoided or reduced if you file an extension.
• Self-employed people have more time to fund retirement plans.
• Unnecessary mistakes happen often when you’re scrambling at the filing deadline – seeking more time could improve accuracy.
• Contrary to headlines, seeking an extension does not increase your risk of being audited.
The cons:
• While the extra time avoids late filing penalties, it does not allow you more time to pay. If you owe the IRS, you will still be charged a late payment penalty of 0.5 percent per month on the tax you owe.
• Contributions to traditional individual retirement accounts and Roth IRAs are still due by the original April deadline.
• The extension does not allow for last-minute filing changes, such as switching from joint to separate returns or adding dependents.
The IRS reports that roughly 10 million Americans will seek extensions this year. Both the federal and state governments will grant the extra time to anyone who fills out the 4868 extension form correctly.
Tabitha Swanson
Westbrook
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