Income Tax Return Extension

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Income Tax Return Extension

Post by Leesbro63 » Mon Mar 20, 2017 11:53 am

Is there any evidence that putting your Federal tax return on extension increases the chance of an audit? Are there any other real consequences of extension?

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Re: Income Tax Return Extension

Post by jebmke » Mon Mar 20, 2017 11:57 am

I have been doing extensions for many years. I had a couple of IRS letters (I call these "desk audits") but I know exactly what triggered them and it had nothing to do with the extension. I extended into January one year due to delays in information from Belgium and that return was accepted immediately and never questioned.
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Re: Income Tax Return Extension

Post by psteinx » Mon Mar 20, 2017 12:18 pm

I've used extensions for a number of years now. I can't speak to the audit risk side of things, but here are a few things to note (not an exhaustive list):

1) A general issue with the extension is that it doesn't extend the need to pay. Thus, if your tax bill, as ultimately computed, is, say, $20K, then you need to have paid $20K by April 15 or face penalties. But since you probably don't know your exact tax bill on April 15 (because you're extending), you'll probably want to overpay. Or, if you're due a refund, that refund will be delayed until you do file.

1a - You'll probably be making an interest free loan to the government for a time. Not a HUGE deal in a low interest rate environment, but not nothing.
1b - If you make a mistake and misestimate, you'll owe some interest and/or penalties. I did this once that I can recall. The interest/penalties didn't seem too bad to me, in relation to the amount in question, but I would have preferred to avoid it.

2) For some taxpayers, not every deadline will shift. Check with your state, in particular. Mine is pretty good about pushing its deadline out along with the Federal extension, but at least one year, I missed a potential state tax credit that had, if I recall correctly, a non-extendable April 15-ish deadline. Also, if you go past the "automatic" 6 month extension (i.e. the easiest to get), other issues may mount.

3) In general, U.S. society, its tax structure, etc, are built around an April 15-ish filing. If you're extending to closer to October 15, you may find some other assorted issues:
3a) Your estimated taxes, safe harbor levels, etc, may be rougher, because you don't have a solid # for your previous year's tax liability
3b) Colleges may want previous tax year's figures, which you may not have prepared. Some credit applications and the like might also be problematic.
3c) There are probably other examples along these lines...

4) If I recall correctly, opportunities to amend, and possibly IRS opportunities to audit, have time limitations tied to filing dates, with extensions. Filing an extended return in October may affect this stuff for you.
Last edited by psteinx on Mon Mar 20, 2017 7:12 pm, edited 1 time in total.

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Re: Income Tax Return Extension

Post by livesoft » Mon Mar 20, 2017 6:46 pm

Leesbro63 wrote:Is there any evidence that putting your Federal tax return on extension increases the chance of an audit? Are there any other real consequences of extension?
I think there is evidence that filing for an extension reduces your chances of an audit. And a simple google search confirms that thought.

I've never cared about audit chances because my tax returns are legit and would not present any problems if audited. I've used extensions ever since I can remember.
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