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GP CPA recently had an opportunity to speak with Tina Orem, author and journalist at Nerd Wallet, about personal income tax extensions.

While we don’t write as eloquently as Tina, we do speak the same language, taxes. Tina asked some important questions about extensions and what most people consistently get incorrect when it comes to personal income tax extensions. While most of GP CPA’s clients do not need or request extensions at tax time, there are a few clients that we typically need to extend because all or some of their current tax year information is not available by April 15th.

This reason, incomplete or non-available tax information, is the original and most common reason for personal income tax extensions. There are plenty of other reasons that cause the need for extensions, but we are going to list out the “other” reasons for personal income tax extensions and why they are not necessarily good reasons. The difference between a reason and an excuse is actually built into tax law!

  • “I think that I/we may owe taxes and I want to extend my personal taxes to provide more time for payment.” This is an excuse and creates a penalty/interest situation if monies are actually due to the IRS or state(s). If a personal income tax extension is filed without payment, it may be invalidated or additional penalties assessed when the return is actually filed. Personal income tax extensions DO NOT provide additional time to pay taxes that may be due, they offer additional time to calculate how much tax may or may not be due. Make a payment – any amount, seriously even $1 – with an extension to save yourself trouble and penalties down the road.
  • “My federal (IRS) extension covers my responsibilities with letting the state I live/work in know that I need more time.” Sure, as long as you don’t live in NC, NY or LA and a few other states. Keep in mind that if you owe state taxes, the extension needs a payment in order to be valid. Automatic state extensions are only automatic if you are expecting a refund!
  • “Extended returns are never audited…” Your personal audit risk is dependent on many factors and extensions are likely (it has never been confirmed one way or another with DATA) a very very small factor. The only thing that extensions affect in regards to audit potential, is the amount of time that your return is “under statute” for collections and possible review by the IRS.

If you have any other questions about personal or business income tax extensions, we would love to answer them. Email, carrier pigeon, or the USPS, GP CPA is available. Remember, extensions are not valid (with or without payment) unless filed by April 15th, so don’t be that person that attempts an extension on the due date and gets it wrong!

 

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