Many people associate April 15th as the tax deadline. And it certainly is, in a sense, but the IRS offers an extension that many people don’t know about.
April 15th (April 18th for the 2023 filing season) is the deadline for paying taxes. However, it is not necessarily the deadline for filing them. For example, if you are set to receive a refund with your tax return, the IRS has no issues with you filing an extension and filing your tax return in October (the end of the six-month extension period).
If you owe money, the IRS wants to receive payment for this tax along with your request for an extension. If you do not pay with your extension, the IRS charges 0.5% per month for a late payment fee and interest at current market rates. As of this writing, the interest rate on underpayments is 7%.
Filing an extension has benefits:
More time to gather documents
The extension gives you more time to ensure you have all the deductions you can claim.
Your tax pro will appreciate you
The tax industry is plagued with burnout and long hours. Do you want your tax preparer to prepare your return while they are low on sleep and just finishing up a 70-hour week? At Arrow Advisors, we double-check our work the next morning if we were working on something late, but some preparers don’t do that, and you could be risking mistakes by pushing them to finish before the April deadline.
Corrected Information
It is becoming increasingly common for brokerage houses to send out corrected dividend information in late March. So if you rush to file before then, you might have to file an amended return when you get amended dividend information.
You may not have a choice
If you are an investor in a pass-through entity like an LLC, partnership, or S-Corporation, you must wait until you receive a Schedule K-1 from that entity. The K-1 is generated when the entity files its business tax return. The entity is allowed a six-month extension from the normal business deadline of March 15th. So, foreseeably the entity could wait until September 15th to provide you with your K1. Although it’s uncommon for them to wait that long, with the shortage of tax preparers, it is common for a business return to extend until April, which only gives you a few weeks to file before the deadline.
Tax extensions are nothing to be afraid of and come with many benefits. Many brokerage houses don’t get their 1099 forms out to recipients until late February, which gives your preparer 45 days to do an enormous workload. We don’t see these brokerages getting forms out any earlier, so extensions will likely become more common.
Disclaimer: Any accounting, business, or tax advice in this blog post is not intended as a thorough analysis of specific issues. It is not a substitute for a formal opinion and is not sufficient to avoid tax-related penalties. If desired, Arrow Advisors would be pleased to perform the requisite research relevant to your specific tax situation, and provide with a written analysis. Such an engagement would be the subject of a separate engagement letter that would define the scope of the consultation services.