As a result of the new tax law, the IRS is expecting to have many more extensions filed this tax season. The advantage of a tax extension is that it gives you (and us) more time to compile all of the needed information to file your return accurately. Also, extensions are often more cost-effective than filing an amended return later down the line and do not increase the likelihood of an audit.
Also noteworthy is that the IRS and State taxing authorities have placed extra precautions and laws in place to reduce identity theft. Congress passed a law that forces the IRS to delay issuing refunds for people claiming certain deductions. For returns filed during the standard tax season, refunds have been delayed significantly over the year because of this new law. An extension may actually help to get through the bottleneck of this process.
Historically, filing a tax return extension has been frowned upon and inaccurately perceived as negative and costly. This is actually not the case. As previously noted, more people than usual, especially small business owners, are facing tax extensions this year.
The April 15 deadline still matters. It’s important to be cautious of accruing interest and penalties if you file an extension. A tax extension is a six-month postponement on the time to file but not on the time to pay. The tax liability seen on the extension form is your responsibility to pay by April 15.
Davis & Hodgdon Associates CPAs is a full-service public accounting firm with locations in Williston and Rutland Vermont. The firm is a member of several diverse regional and statewide business organizations and serves its clients by providing progressive, proactive services through expert staff, high-end technology, and unparalleled efficiency.