Does a Tax Extension Increase Your Chances of a Tax Audit?
In some situations, a tax extension is absolutely necessary. However, some people file for an extension every year even if they don’t actually need one. A personal tax extension will give you 6 more months to file your Federal income tax return ― although you must still pay any tax owed by the original due date (typically April 15).
You never know when an emergency (personal or financial) will pop up and force you to drop everything else. If this happens during tax season, you should file a tax extension. Are you having a difficult time finding all the receipts that you accumulated during the past year? Did you misplace your W-2 or 1099s? While you could rush to file your taxes with what you have, there is no good reason you should take that risk. Rushing through your tax return often leads to mistakes ― and those mistakes can be costly.
To request a tax extension, fill out IRS Tax Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) and submit it to the IRS by the original deadline of your tax return (usually April 15). Keep in mind that you must also send the IRS payment for any taxes due.
Tax Extensions and Tax Audits: Is There a Connection?
When someone says the words "tax extension" to you, do you automatically think "tax audit?”
Maybe it's time to think again. No one outside the IRS knows for sure how the audit selection system really works, but many CPAs have said that tax extensions actually decrease your chances of getting audited.
Why, you ask? Many financial advisors and accountants believe that IRS officers have an "audit quota" which begins around tax filing season. Some theorize that these quotas get filled well before the tax extension deadline in October (or September for certain business tax extensions). Thus, when the surge of tax season is over and the tax returns which have been approved for extensions are finally submitted, the IRS agents have less incentive to put those returns in their audit pile.
There is some discussion as to whether or not this is true, but filing a tax extension certainly won't single you out for unfavorable treatment by the IRS. Approximately 10 million taxpayers filed a tax extension last year, including individuals as well as businesses.
Does the IRS Hate Tax Extensions?
It's commonly believed that the IRS frowns on tax extensions and is less likely to treat extended returns in a favorable manner. If that were the case, however, why would they offer an automatic 6-month tax extension to anyone who files for it, with no questions asked? Additionally, by filing for a tax extension you are actually demonstrating compliance with IRS regulations. Think of all the people who just file late (or not at all) without even contacting the IRS.
It is also probable that, just like you and your accountant, the IRS agents wouldn't mind having to process fewer tax returns during March and April. Both accountants and IRS agents can be easily overwhelmed during tax season, and the chances of human error (which may trigger a tax audit) is much greater. Therefore, there is no reason you shouldn't give everyone a bit of a break and file for a tax extension this year.
It's now easier than ever to file a Federal income tax extension online. With FileLater, you can complete the online tax extension process in minutes, and our automated system helps reduce human error when filling out the tax forms. You will be notified via email confirmation when your tax extension is approved by the IRS ― and if, for any reason, it's rejected, you will be told why and allowed to re-submit it for free.