An extension gives you more time to file, but it does not give you more time to pay.

Having extra time to finish your return is often necessary if you're still waiting for tax documents to arrive in the mail or if you need additional time to organize your deductions.

However, there are both pros and cons involved with filing for an extension.

IS FILING A TAX EXTENSION THE RIGHT MOVE FOR YOU?

You might not have a choice under some circumstances. Having extra time to finish your return is often necessary if you're still waiting for tax documents to arrive in the mail or if you need additional time to organize your deductions. However, there are both pros and cons involved with filing for an extension.

Pros:

• Reduce late penalties. You'll avoid the 5% per month late-filing penalty if you file for an extension, then file your return by the extended deadline, which is usually Oct. 15.

• Preserve your tax refund. The refund statute of limitations is also extended by six months when you file for an extension, which can preserve the ability of taxpayers to receive their federal tax refunds, even if they're behind with submitting their tax returns.

• Fund a self-employed retirement plan. Self-employed people might want to fund SEP IRAs, solo 401(k)s, or SIMPLE IRA plans for themselves. Filing for an extension provides these taxpayers with an additional six months to do so.

• Avoid rushing and potential errors. Filing for an extension can give you more time to gather all necessary tax documents and information, allowing you to take a more deliberate approach to the preparation of your tax return. By avoiding the rush to file by the original deadline, you can minimize the potential for errors or omissions on your tax return.

• Take extra time to make elections. A wide variety of decisions must be made when you're preparing your tax return. Filing an extension gives you extra time to mull it over or to seek help.

• Maximize deductions and credits. Taking the extra time to review your tax situation and work with a tax professional may reveal additional opportunities to claim deductions and credits that could reduce your tax liability or increase your refund.

• Avoid audit triggers. Rushing to file your tax return by the original deadline can increase the likelihood of making mistakes or omitting important information, which could trigger an audit. By taking the extra time to prepare and file your tax return, you can reduce the risk of being selected for an audit.

• Reduce your tax preparation fees. Price-sensitive taxpayers can save money on tax prep by shifting tax preparation to a time when their accountant is less busy and charging a lower fee.

• Plan for future tax years. By extending the deadline for filing your current year's tax return, you can shift your focus to planning for the upcoming tax year. This can be especially helpful for individuals who are self-employed or have more complex tax situations.

• Reduce stress. If you're feeling overwhelmed or stressed about meeting the original tax deadline, filing for an extension can provide some relief. Knowing that you have extra time to prepare and submit your tax return can ease the pressure and allow you to focus on other tasks.

Cons:

• Increase in interest and penalties. Although filing for an extension can help you avoid the late-filing penalty, it doesn't extend the deadline for paying any taxes owed. If you don't pay at least 90% of your tax liability by the original deadline, you may be subject to interest and penalties.

• Miss out on tax planning opportunities. By waiting until the extended deadline to file your tax return, you may miss out on certain tax planning opportunities that are only available before the original deadline. For example, contributions to a traditional IRA and Roth IRA are still due by the original tax deadline unless you are contributing to a SEP-IRA.

• You can't switch from married filing jointly to separately after the deadline. Married taxpayers who file jointly before the April deadline still only have until April 15 (unless you are subject to a disaster relief exception) to amend their tax returns to switch to the married-filing-separately status.

• The mark-to-market election for professional traders doesn't advance. You must make this election by the original April due date (unless you are subject to a disaster relief exception).

• Delay in receiving your refund. While filing for an extension can extend the deadline for filing your tax return, it doesn't speed up the process of receiving your refund. If you're entitled to a refund, filing for an extension will delay the date when you can expect to receive it.

• You might confuse the IRS. The agency might ask you to file a tax return because you filed an extension to ask for additional time, then ended up not filing—perhaps because you realized that you don't meet the income requirements.

Ultimately, the decision to file for an extension should be based on your individual circumstances and tax situation. Most extension requests will be honored automatically. You don't have to explain to the IRS why you need the extension; simply file the form. Interested in getting a professional to look at your books for tax filing? Schedule a call with us today.