Saturday, April 11, 2015

Should You File for a Tax Extension? Contact me for assistance in filing an extension.

The tax deadline of April 15 is rapidly approaching and maybe you’re in panic mode. If you don’t have all your documents, facts and figures together, you may be considering either devoting some midnight oil to the project, or filing an extension.
Many people believe that if after years of timely filing, they suddenly put in for an extension that a red flag will go up. Not so. The IRS does not track this behavior and oftentimes there are very good reasons to file an extension.
On the other hand, some folks believe that filing an extension is the best thing to do to minimize audit risk. There’s been a rumor going around for years that the IRS makes its selection of returns to audit by pulling from the seasonal pool – those returns that are filed by April 15. Well, this is just a rumor and I have never been able to substantiate it. Auditors claim no knowledge on the subject and I can’t tell if they are being truthful or if they have pledged secrecy. Personally, I think there are other factors that flag returns for audits; not the filing date.
The following guidelines regarding the wisdom of filing an extension are provided by John Petosa, CPA, JD, Professor of Accounting Practice at Syracuse Joseph I. Lubin School of Accounting and Whitman’s online master’s program, Accounting@Syracuse.
1. “File an extension if you are currently under audit.  If you are being audited and file an extension, the IRS cannot include the current year in their audit.” The outcome of the audit may also affect your current year filing. For example, you might have NOL, capital loss, passive loss or home office operating expense carry forwards that may be applied to the current year. If the audit results change any of those numbers, you will want to wait until the end of the audit to determine the proper carry forward amounts.
2. “If you don’t have all the information to file the return completely and accurately, you should wait.  The primary way that a person is audited either via a letter or in person is because the information on their return fails to match a 1099, W-2 or some other information form that was filed with the IRS using the taxpayer’s social security number.  Making sure you have all the information in your return is a wise reason to extend the return.” Because partnerships, S Corporations, and Trusts can extend to September 15 for the filing of those tax returns, the K-1s they generate that belong to your individual return may be delayed until then. It’s better to wait, then file and amend later. After all, amended returns are more likely to be audited.
3. “ An important reminder is that filing an extension does not extend the time to pay the tax due.  Even if you file the extension you are still required to pay the tax that you think is due with the extension.” Use IRS Form 4868 and paper file with a check for the amount you think you will owe. Best to overpay and get a refund than underpay and be penalized. Remember to put your Social Security number and Form 1040 2015 on the memo line of the check so it is applied properly.
4. “Filing the extension and paying the amount that is due avoids the penalty and possible criminal sanctions associated with the “failure to file”.  File the extension and get the extra time to file completely rather than not extend the return, file late and pay late and be subject to significant penalties and interest.”
5.“If you have asked for a private letter ruling on a particular tax position you are considering using you should extend the return in anticipation of the response.”

No comments:

Post a Comment