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Maneuvering tax-return extensions
As the April 15 deadline looms, many taxpayers are considering extending their 2013 tax returns.
While there are many reasons to file an extension, it ultimately comes down to the need for more time. Taxpayers might need extra time to gather their documents, or they might be waiting on tax documents from outside investments. If you’re faced with an extension, the following will help put your mind at ease and answer some common questions regarding extensions.
Tax-return extension misconceptions
The most common confusions surface in the form of two questions: “Will my return be flagged for an audit because I extended?” and “Why do I have to pay my tax now?”
Addressing the first concern, extensions are not a red flag for audits. Extensions are fairly common, and they don’t change the risk of an audit. Don’t avoid filing an extension in attempt to avoid an audit. In fact, if your information isn’t complete or ready to prepare a clean return, an extension is a favorable option. Submitting incorrect information can produce the need to file an amended return, which will cost the taxpayer both time and resources.
Extensions don’t extend time to pay
One of the challenges surrounding extensions is many taxpayers don’t understand they must pay their tax due for the year by the original due date. This creates further timing problems. Because the tax due cannot be extended, extensions often require more effort than simply signing a piece of paper. The tax preparer must have the information necessary to determine the amount due with the return. This is why your tax preparer requests information prior to filing the extension. The more information the tax preparer has, the more likely the taxpayer is to avoid penalties and interest from underpayment of tax due as of April 15.
Taxpayers required to make estimated tax payments should be mindful of the April 15 deadline for first quarter estimates. The purpose of the estimate is to pay for the tax due on income earned throughout the first three months of the year. Tax preparers will need to know if there have been any significant changes in your income or expenses that need to be accounted for during your first quarter estimate. This payment can also be funded with the expected refund from the prior-year return.
April 15 mark
Ultimately, tax extensions provide the taxpayer with extra time to ensure correct information is reported on their year-end returns. Remember, there is no extension of time to pay. If you owe tax for the prior year, it’s due on April 15, regardless of extension filing. Furthermore, if you’re required to pay quarterly estimates, the current year first quarter estimated payment is also due on the same day. These due dates make April 15 an expensive day for many taxpayers. Be sure to consult with your tax preparer as early in the year as possible to allow for adequate planning.