Why You Should Extend Your Tax Return

We’ve been scurrying around the last week or so, trying to finish up individual taxpayers’ tax returns.

But can I share a tax accounting secret with you?

You’re crazy to let your accountant finish off your tax return in April. For heaven’s sake, extend.

In fact, by my count, you’ve got potentially four reasons to not try and rush…

Tax Season Wrong Time to Pay for Preparation

Here’s the first reason you should extend: Tax season, ironically, is a terrible time for your tax accountant to prepare your return.

Early in the season, the tax software is still buggy and, often, neither the forms nor the form instructions are truly finalized. (Blame Congress for this, by the way.)

By the middle of the tax season, yes, the software has been debugged but sometimes neither your tax accountant nor the IRS has had enough experience with new tax laws to dependably “get it right.”

This year, for example, the IRS changed the rules for accounting for tangible property roughly mid-way through the business tax return season because their initial procedures proved unworkable. (See here for our discussion of this absurdity.)

In addition, and at about the same time, the IRS also changed the rules related to the Affordable Care Act (“Obamacare”), delaying a $36,500 per employee penalty that was supposed to start applying to non-compliant small businesses in 2014.

Finally, at the tail end of the tax season, your tax accountant is often working such long hours, and has been for so many weeks, that the error rate begins to creep up the closer you get to the deadline.

Extension Season Means Better Quality and Better Service

Once April 15^th passes, in comparison, the game changes.

For one thing, after April 15^th, your tax accountant works with a much more stable set of tools.

Furthermore, he or she probably has lots more experience dealing with any new laws or regulations.

Finally, and especially as compared to the rush that precedes the first deadline, after April 15^th, your accountant should have considerably more time and attention for your tax return and the hundreds of small details that sometimes offer big opportunities for saving taxes.

Extensions Easy and Free

Another reason to extend? Extending your tax return due date is easy and essentially free.

To extend an individual tax return, for example, you file a form 4868 with the IRS. And this simple form is easy to prepare. Practically speaking, you only need to provide your name and social security number. (Here’s a link to the tax extension form.)

Tip: If you want to extend the tax return for a married couple, you need to provide both individual’s names and social security numbers.

By the way, when you prepare a 4868, you are supposed to pay any taxes you owe when you extend. But you can make a rough estimate. And if you do come up short, the only cost is a minor “penalty” that works like reasonable interest rate applied to any remaining liability.

Note: You can extend the due date for a 1040 return until October 15.

Midyear Often Means Better Tax Planning for Next Return

A final reason to dilly-dally at least a little bit…

If you work with your accountant later into the year—like late in the spring or sometime during the summer—you’ll often be able to get some input and ideas for your next tax return.

In other words, if you connect with your tax accountant not only when he or she has more time, but also when you’ve experienced more of the current year’s income and deduction activity, you may be able to get better planning advice.