Many who have never filed an extension are cautious if they have to file one. They are afraid that “bad things” may happen. Tax extensions are nothing to be afraid of and may in fact be a good move. First, extensions for tax returns are needed when there is not enough time or information to file an accurate return by the first due date of the return (for individuals this is April 15, but for corporations, this is March 15). If there is money due, the due date cannot be changed. Late payment penalties and interest still begin on the original due date, even though the IRS may not know what the calculation is until the final returns are filed. You should mail in the estimated balance due with the extension to minimize or eliminate this penalty.
In many cases, it may be necessary to file an extension if you receive K-1’s for partnership or other business interests because that information is not available yet. If there are questions about the accuracy of information, don’t be afraid of extensions. It is better to wait and file with real information than to “guesstimate” the information.
There is also one other reason you may want to consider routinely filing an extension each year. There have been several studies that indicate that you could be reducing audit risk by filing your returns later. Amir D. Aczel, PhD, a professor of statistics, was once audited and it took him two years to get a no change conclusion. He was not thrilled with the time this took and the IRS process so he decided to dig in and write a book about the process. He surveyed several accountants on timing and research about audit risk. He showed statistically in his book, “How to Beat the IRS at its Own Game,” that filing later reduces audit risk and the changes of being selected.
When asked about how to avoid an audit at a seminar of 500 CPAs, a former District Director of the IRS when asked about how to avoid an audit he said “pay your tax on time and file late. If you file late the service is just glad to get the return and get it processed…”
Is this fool proof? I don’t know, but can it hurt you? No, there is no reason that you cannot fully comply with your responsibilities as a tax payer and file by October 15 as required by law. Do your part, but be smart.
Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.