Pros and Cons of Filing for a Tax Extension

As a potential taxpayer, you already know that you shouldn’t miss the tax deadline. With that said, if you expect a tax refund, it’s in your best interest to file early so that you can receive your tax refund faster. 

Nonetheless, if you actually need more time to file your taxes, your best option is to file for a tax extension so you can get some extra time. However, you should know that the IRS still anticipates that you will pay your taxes on time.

This aspect leads to the important question of whether extending the tax is a great idea. Let’s explore the pros and cons.

Potential Benefits of Tax Extension

Let us explore the potential benefits of tax extension: 

Super-Easy Tax Extension Process

In an ideal scenario, you should file for a tax extension if you believe that you cannot pay your taxes on time. The best part of filing for a tax extension is that the process is incredibly easy. However, make sure that you file for the tax extension before the original deadline to file your taxes. If you happen to be self-employed, you might still be required to complete your first quarter estimated tax payment.

You might want to leverage TurboTax for filing the extension. This way, you can avoid potential interest and penalties while leveraging the little extra time to file your tax return. 

Leverage Extra Time to Track Forms and Receipts

A proper text filing requires you to have all necessary documents ready. However, if you are missing forms and receipts, you might want to opt for filing a tax extension so that you can leverage the extra time and track down the missing documents. You can also call the IRS for a substitute copy if your employer is unavailable or uncooperative. 

Avoid Penalty in Case of Late Filing

Another potential benefit of filing for a tax extension is that you can effectively avoid the penalty linked to late filing. The typical penalty includes 5% of the unpaid taxes for every month that you are late. However, after two months, the penalty will increase to 100% of the unpaid taxes. With that said, it is in your best interest to request a tax extension, as you can benefit from the extra time and avoid the late filing penalty.  

Potential Downsides of Tax Extension

Let us explore the potential downsides of tax extension. One of the biggest concerns linked with filing for a tax extension comes down to the fact that you will still have to file your taxes by the predefined deadline. Here’s the thing: if you owe taxes and miss the payment deadline, it will only result in accumulating interest and potential penalties.

The penalty starts at 5% per month and can rise to as high as 25%. The best strategy to avoid penalties and interest is to file your taxes on time and pay as much as possible before the deadline. You may want to consider leveraging the potential payment options offered by the IRS to manage your balance.