Top 5 Extension Myths

Hi Everyone, 

Now that we are quite advanced in tax season, let’s go over some common extension myths. 

Myth: If I extend, my return is considered “late”

False. Even the IRS form itself is titled “Automatic Extension.” The IRS uses a 2-deadline system, allowing any taxpayer to file in Oct if they choose. The fact that it is automatic is literally in the name of the form! 

Myth: I will be penalized for extending 

Truth: False. The extension process is entirely penalty-free for both the IRS and any of the 43 US states that tax income. One caveat: if you owe, you must prepay an estimate. 

Myth: The IRS hates extensions 

Truth: False. The IRS is inundated with work later in the Jan-Apr season. Their systems are based on COBOL, a legacy platform, and are “taped and glued” together. The agents & reps themselves are overwhelmed and would love to spread out the volume. 

Myth: Extensions are rare 

Truth: False. Some taxpayers mistakenly believe that filing for an extension is uncommon or suggests a problem with their taxes. In reality, over 10 million taxpayers file for extensions each year. Many of the most financially successful or savvy taxpayers extend each year. I personally extend first thing January, and most of my own CPA team extends their own taxes.

Myth: I am giving an interest-free loan to the government when I make my estimated payment. I can make a far better return on my money through my investments. 

Truth: First off, settle down, Warren Buffet 🙂 Please note that even the best fund managers, money managers, traders, and speculators routinely file extensions. Why? 

• Because many of the most financially successful people tend to have complex returns, such as investments in private business interests, which make extensions required. 
• Just a note: Although you do have to wait for a refund, please note that the IRS does, in fact, pay you interest if there are delays of over 45 days on their end. 

Myth: I will have to wait longer for my refund

Truth: This is partially correct and partially untrue. If you rush through your return to meet this arbitrary April 15th initial deadline & you make mistakes, you risk having to wait far longer if your return is selected for review. Remember, rushed work leads to rushed results, even if you are using a professional preparer. 

This is why the best CPAs will have a cutoff date anywhere between Feb 15th and March 31st, putting later-season returns on extension: because they care about work quality. I would be concerned if any professional is taking unextended work too late in the season.

Myth: Extending increases my chances of an audit 

Truth: False. Extended returns are less likely to be audited. This is because the IRS pulls returns for audit as the season starts. Later in the season, the audit department increasingly hits capacity. So, the standards for selecting returns for audits becomes increasingly higher, meaning that later-season returns are far less likely to be selected & are selected only in cases where the underreporting appears to be egregious. 

For help with filing an extension, questions about the process, or really any tax or accounting assistance, please hit “contact.”

— 

George Dimov CPA

www.dimovtax.com

(833) 829-1120 toll free