With the deadline to file your business and personal federal and state taxes for 2020 fast approaching, should you file for a tax extension this year?
Businesses who file as an S corporation or partnership have tax returns due by March 15. For individuals and sole proprietorships, the deadline is April 15.
With several different pieces of legislation directly affecting tax returns pending, it may make sense for some to file for an extension. Please be aware, though, that if you suspect you will owe taxes, you should submit them by April 15. This is necessary if you want to avoid penalties and interest, even if the IRS grants you an extension.
Last year, the IRS announced on March 21 that the filing and payment deadline was extended to July 15, 2020, for 2019 federal tax returns. There is a chance the same will happen this year, in which case the IRS will automatically extend individual returns, corporations, and trusts. Interest and penalties were also automatically avoided as long as they were paid by July 15.
Until we know for sure that the IRS will grant an extension, it’s best not to count on it if you think you’ll need an extension.
Here are a few reasons why it might be in your best interest to file an extension on your taxes.
If you don’t have all the proper documentation to file your tax return, it won’t be accurate. Some end up in a situation where an expected 1099 or Schedule K-1 doesn’t arrive in time to have your tax return submitted by April 15.
This could also be the case if the document had incorrect information and you’re waiting on a corrected one. Suppose you’re waiting for corrected documents or missing data. In that case, you may want to file an extension to give yourself more time.
Unavailable During Tax Season?
For snowbirds who travel out of state for the winter and expect a refund, it’s common practice to file an extension. An extension allows them time to come back to their primary residence, gather the documents needed, and complete their tax returns at a later date.
If you don’t want to e-file, are waiting on paper documentation, and expect a refund, it may be a good idea to file for an extension. Just remember, if you think you’ll owe, you will owe interest and penalties if you don’t pay by April 15.
Time Slips Away
Sometimes, you get busy, and time goes too quickly, and before you know it, you’re a few days from the deadline, and you aren’t prepared to file. You could be dealing with a:
- Major life event
- Loss of a loved one
Or any other number of scenarios that find you up against the tax deadline with no time to prepare and file. These circumstances can even happen to tax preparers, whether their personal situation prevents timely filing or clients who send in information too close to the deadline.
If you expect a refund and are dealing with a situation, filing for an extension can take the looming deadline off your plate until you’re more prepared to handle it.
The Worst Reason to File a Tax Extension on Your Taxes
If you’re unable to pay the taxes you owe, it’s the worst reason to file for an extension. Even if the IRS grants it, you could be subject to interest and penalties on top of what you owe.
The better alternative is to file your taxes on time and request an extension to pay or opt for a payment plan. You’ll still pay penalties and interest, but they won’t be as much as if you just didn’t pay them.
Need Help? Still Not Sure if Filing a Tax Extension is Right for You?
If you need help filing an extension or aren’t sure if you should file for one in the first place, JStevens Accounting in Annapolis is here for you. Contact us today to let us know about your situation so we can offer guidance and assistance for your accounting and tax needs.