May 31st, 2013
Are you one of the millions of Americans who filed for an income tax extension this year? On average, 3 million businesses and 10 million individuals file for tax extensions each year, but all of those people now find the clock ticking on their 2012 returns.
An extension offers the benefits of allowing the person or company extra time to compile and file a tax return that saves them the most money. However, the flip side is that, if you do owe any additional taxes, when you finally get around to filing your return, those will be backdated with interest to the original April 15th cut-off date. The current IRS interest calculations are 0.5 percent monthly on the entire balance owed, plus an additional 3 percent interest per year that is compounded daily. So although an extension buys you an additional 6 months to file, you may not wish to leave it that long if you’re in debt to the IRS.
Assuming you don’t owe too much to Uncle Sam, an extension doesn’t hold too many pitfalls. But let’s debunk a few myths about filing for a tax extension.
You can get turned down for a tax extension. Provided you filled out the forms accurately and on time, the IRS automatically grants any and everyone a tax extension.
If you file a tax extension you then have to wait 6 months to finally send in your return. This is also false, and the moment your taxes are ready for filing and your paperwork is in order, you can file your return (this is particularly pertinent if, as outlined above, you owe the IRS any taxes).
If you file for an extension you’re more likely to be audited. This is another popular myth, but it is a myth. In fact, some statistics show that companies and individuals who file for extensions are less likely to be audited.
However, if you’ve asked the IRS for an extension it might be because your taxes are in disarray, or perhaps you’re worried about your return. If this is the case, it’s probably wise to opt for the extension, but it will be even wiser to seek the advice and expertise of a tax specialist if you find yourself in that situation. On the face of it, consulting a tax lawyer might seem drastic, but in reality a lawyer who specializes in income tax preparation, IRS tax audits and tax representation can save you a considerable sum of money you’d unnecessarily be paying in taxes otherwise, as well as save you the stress and uncertainty many people suffer from when dealing with the IRS.