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Obtaining an Extension to File Your Tax Return

The tax due date for most individual tax returns this year is April 18. If you are unable to complete your return to file by April 18, you can file for an extension to submit your return by October 17. However, the extension does not cover the payment of the tax due. The taxes need to be paid by April 18, or you will be assessed interest and penalties, and if the correct payments are not made, it is possible that the extension will not be accepted, and late filing penalties will also be due.

My personal recommendation is to file on time if it is at all possible. It gets it done, there is no uncertainty about the bottom-line results, you know where you stand, the completed and filed return can be used for 2022 tax planning, you can use the return to review your investment income and whether you are on the right track to accomplish your financial goals, it stops you from having a past year view and gives you a current and future mentality, and you get it off of your mind. Also, while the time you might spend preparing the extension could be minimal, making the projection of the amounts that should be paid can take considerable added time.

Irrespective of my recommendation, there are many valid reasons for extensions and here are some of them.If you know that you will be filing for an extension, do not wait until the last minute but get it done now in a less-rushed atmosphere.

  • You did not receive some K-1s or 1099s or other documents with information that you need to report.
  • You did not receive a W-2 wage statement from an employer. This can be a problem, but the IRS has Form 4852 Substitute for Form W-2 to recreate your version of your W-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 or did not yet obtain the certified appraisals for contributions of property over $5,000 (this is a MUST).
  • You have pending litigation or a tax audit, and reporting certain transactions might prejudice your position, or you are awaiting a resolution that might affect an item on this year’s return.
  • You are involved in a marital separation, litigation or are a candidate for a public position that requires tax return disclosure, and you want to delay the disclosure as long as possible.
  • You might want to reverse a 2021 IRA conversion to a Roth IRA and would rather not file by April 18, which might cause an amended return, which would not be necessary if you have the extension and decide to reverse the conversion by October 17, 2022.
  • Circumstances may have prohibited you from assembling all your information properly. This might include a medical emergency or searching for tax basis of securities or assets that have been sold or being on jury duty for a protracted period.
  • You have a complicated situation, and you feel it is best to have an extension so you or your preparer would have more (and more relaxed) time to devote to your return.
  • If your tax preparer is unable to devote the necessary time to get the return ready to file on time.
  • You might want to open and/or fund a SEP pension plan. By extending, you will have until October 17 to make your decision. If you already have a Keogh, 401k or SIMPLE plan, the employer’s 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, 2021 (crazy and inconsistent rules for basically the same type of deductions).
  • You did not file last year’s return and feel that filing this year’s return before the prior year would 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 include the extended due date.
  • Those with a 2021 installment sale might want to wait as long as possible in 2022 to consider electing out of the installment sale if your 2021 taxable income is substantially lower than what is expected for 2022 or later years or if a tax increase is enacted for 2022 that would cause a greater tax than using last year’s rates.
  • 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 instead.
  • The extension can delay elections that are made on the first-filed tax return of a new business reporting certain transactions.
  • The extension would also cover a gift tax return where not all the issues are clear, including generation-skipping elections and spousal consents, or where basic information is not readily available, or discount valuations are not completed.
  • There is a high risk of audit and 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.
  • An error is discovered on a prior year’s return, and additional time is needed to research and correct it, and the current year’s return might be affected by the change.
  • You will be out of the country during the filing period and will not have adequate time to prepare or thoroughly review your return. Note: If you are a U.S. citizen, U.S. resident for tax purposes or in the military and qualify under special rules for being out of the country on April 18, 2022, you will have an automatic two-month extension to file and make any payments and do not have to file for the extension. If you need additional time after that date, then you will need to file for an additional four-month extension. If you are abroad and want the extension because you expect to qualify for special tax treatment, you should file Form 2350.
  • A suggestion to avoid filing an extension when you did not receive a K-1 that will report an insignificant amount is to estimate the amount and file on time. When you file next year’s return, adjust the amount for the difference in what you reported and the actual K-1 amount. This is informally referred to as a true-up. However, if the amount is substantial, I suggest waiting for the final K-1 and filing the extension.
  • You ran out of time to get the return done.

Extensions are filed on IRS Form 4868 and can be filed electronically. Also, you might need to file a separate state tax extension and pay that tax.

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 2021 tax for the extension, the added first-quarter payment would reduce that penalty which would be greater than the penalty for the underestimated 2021 tax. 

Also, do not forget to also file a State extension if applicable.

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