Filing a Tax Extension Is Ok, Really

If you extend, you still need to pay on time if you think you'll owe

A helicopter carrying a piggy bank. Filing an extension won't cause them to take your piggy bank away.
Extensions are very useful, even for tax returns. Colin Anderson / Getty Images

Filing a tax extension is not a big deal - not at all. Contrary to what many believe, it does not raise red flags at the IRS. It does not increase your chances to be audited. I file an extension almost every year.

Many retirees want to avoid filing an extension. Why? I don't know. It can be a smart move when you need more time to gather your information. Here's what filing an extension will and won't do for you.

Filing an Extension Will Not Give You Extra Time to Pay

If you owe money, filing a tax extension will not give you extra time to pay. When you file the extension you should have an estimate of what you think you will owe and you should pay this amount by the tax filing deadline.

The extension grants you extra time to gather information and prepare a complete return - it does not provide you extra time to pay. In cases where you think you will owe, send in a payment along with your extension. If it ends up you didn't owe as much as you thought, you can have the amount paid applied to the following year - or it can be returned to you.

I file an extension because spring is the busiest time of year in my business. I am busy providing tax information to my clients and to their tax advisors. The importance of providing clients with my attention leaves me very little time to focus on doing my own taxes.

I have far more time in the summer. Extending my return is convenient.

It can also make sense to file an extension if you are in a partnership or receive a K-1. In these situations,​you may not get the info you need until mid-March. Why rush, when you don't have to?

In addition, if you have a death in the family, have recently moved, or have other stressful events occurring, it may make sense to take some extra time before you file your return.

 

An Extension Give You Extra Time to Gather Info

Although a tax extension doesn't buy you time to pay, if you need more time to gather information, extending can be a valuable tool that provides significant stress relief - it gives you an extra six months to prepare and file your tax return. Roughly thirteen million taxpayers file for an extension each year. 

If you own investments, brokerage firms have until February 15th to send out tax forms. In many cases, a month later a corrected tax form is sent. If you are traveling in the spring, you may be short on time to gather up all the forms and get your return done by April 15th. Filing an extension is the perfect way to give yourself more time.

To file an extension, you complete a Form 4868 and submit it by the normal tax filing deadline. There are also many tax preparation services to help you take the guesswork out of filing an extension. It is better to file an extension than to not file at all, so if life events have disrupted your schedule, don't be shy about seeking professional help.

And as far as your risk of audit? Many CPAs say filing an extension decreases your odds of being audited!