August 12, 2014

15 Reasons for Obtaining a Tax Extension

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15 Reasons for Obtaining a Tax Extension

15 Reasons for Obtaining an Extension

1. You still have not received K-1s, 1099s or other documents needed to accurately prepare your return.

2. You did not receive letters confirming charitable contributions that are required to be in your possession by the due date of your tax return.

3. There is pending litigation or a tax audit and reporting certain transactions might prejudice your position or you are awaiting resolution which might affect an item on this year’s return.

4. You might want to reverse a 2013 IRA conversion to a Roth IRA and would rather not file by April 15 so an amended return would not be necessary if you decide to reverse the conversion by October 15, 2014.

5. Circumstances may have prohibited you from assembling all your information properly.

This might also include searching for tax basis of securities or assets that have been sold.

6. You have a complicated situation and you feel it is best to have an extension so the preparer would have more time to devote to your return and feel less-rushed.

7. You might want to open and/or fund a SEP pension plan. By extending, you will have until October 15 to make your decision. If you have a Keogh, 401k or SIMPLE plan, the contribution for last year can be made by the extended due date, but the Keogh and 401k must have been established by the previous December 31 and the SIMPLE by September 30, 2013 (crazy and inconsistent rules for basically the same type of deductions).

8. You did not file last year’s return and feel that filing this year’s return before the prior year will cause extra IRS attention to you. However, irrespective of what you did not file, you should file this year’s return on time which would be the extended due date.

9. Those with a 2013 installment sale might want to wait as long as possible in 2014 to consider electing out of the installment sale if your 2013 taxable income is expected to be substantially lower than 2014.

10. People with net operating or other losses that can be carried back might want to delay filing to determine if they should elect to forego that and carry it forward 11. The extension can delay elections that are made on the first-filed tax return reporting certain new transactions.

12. The extension is for a gift tax return where not all the issues are clear including generation skipping elections and spousal consents, or where basis information is not readily available or discount valuations are not completed.

13. There is a high risk of audit – filing an extension might reduce the chance of an audit. Note that it will not lower the chance of a computer generated notice questioning an item or picking up income that was not reported.

14. If the tax preparer is unable to devote the necessary time to get the return ready to file on time.

15. An error is discovered on a prior year return and additional time is needed to research and correct it, and the current year’s return might be affected by the change.

Comment: The extension is to delay the filing, not the payment. Payments must be timely made.

A tip for those filing extensions that also have to pay estimated tax is to include the first quarter estimated payment with the extension payment. In the case where you underestimated your 2013 tax for the extension, the added first quarter payment would reduce that penalty which is greater than the penalty for the underestimated 2014 tax. Also, do not forget to also file a State extension if applicable.

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