What It Means to Extend a Tax Return

Filing an individual tax return extension is often misunderstood and sometimes abused. A federal tax extension is a form filed with the IRS to request additional time to file your income tax return. The extension period is six months and grants additional time to submit a complete and accurate tax return.

At times, taxpayers will have good reasons to extend their return, such as missing information or life getting in the way. Other times, tax preparers will recommend you file an extension due to the complexity of the return, awaiting guidance, specialized forms due to tax reform, or limited time remaining in the tax season to complete the return. Many preparers, such as myself, will issue a cut-off date for clients to submit their tax information so they can plan their workload, ensuring all client returns and extensions are completed by the tax deadline.

Some ask if you should do anything differently when filing an extension. The answer is no. You should still give your tax preparer all information available as early as possible to allow time to determine if you expect a refund or, more importantly, have a balance due.

When tax documents are not available, extensions are made without payments. Confusion exists when it is believed filing an extension also extends paying your tax liability. It does not. Underpayment penalties and interest are assessed when the balance due is not paid by the April deadline. Compare it to a consumer charge card. If you make a late payment, you are billed a penalty and additional interest. Taxes are treated the same.

If you normally make quarterly estimated tax payments, include an estimate for the first quarter in your payment. Otherwise, expect some underpayment penalties the following year.

In any case, filing an extension does not increase your likelihood of being audited by the IRS if the return is properly filed by the extension deadline. It is always better, and less costly, to file an extension rather than to file an incomplete return or one you have not had time to review carefully before signing.

Pam Smitson, CPA, CGMA, Smitson Erhart-Graves Financial Advisors

This article was included in the Worley Erhart-Graves Quarterly Newsletter. Download the printable version here.