This year, a record number of tax returns will be put on extension, and yours might be one of them. Having your return go on extension makes some taxpayers fearful and even angry. There are a lot of things to worry about in life, but filing a tax extension is not one of them.
Here are several reasons why filing a tax extension is in your favor in 2021.
1. Less Chance of Being Audited
Let’s bust the big myth right away. Some taxpayers incorrectly think that if you file an extension, you increase your chances of being audited. This is the opposite of true. There is no difference in your chances of being audited based on when you file.
Some experts believe that filing your return after the first deadline actually decreases your chance of being audited.
Year after year, as Congress reduces the IRS’s budget, the number of audits has decreased. For tax year 2019, the agency audited 0.45% of individual tax returns or 1 out of every 220.
2. More Time
When an extension is filed for individual taxes, taxpayers have until October 15 to file their returns. You have more time to get documents organized, clean up accounting errors, and work with your tax accountant.
Your tax accountant has more time too. You’ve seen how busy the stores are at Christmas. It’s because everyone waits until December to buy gifts, decorations, party supplies, and food to celebrate this holiday. The month before the tax deadline for getting your taxes done – this year it was May 17 for most states – is like stores at Christmas. Everybody is trying to get their taxes done at once, and many accountants even have to turn work down.
3. More Money
This year was probably the most challenging year of their career for tax professionals. The trifecta of stress events occurred for them:
Three major new complex tax laws in the last 14 months including one with retroactive changes right in the middle of busy season,
A pandemic which upended all of us, and
Four significant new tax credit vehicles, each with new forms and new rules involving third parties (banks, SBA): PPP, SVOG, RRF, and ERC, all of which have the potential to impact your 2020 tax return.
The more time tax pros have to get good at these new laws, the more benefit to you as they can often find additional ways to save you money once they have learned the ins and outs of these new laws. And they are complex.
An extension also extends the capability to add more to certain tax-advantage retirement options; check with your tax pro to get the details.
4. Better Accuracy
Let’s face it. When a tax pro has to work 80 hours a week, there are going to be mistakes. Getting your return done in the summer months increases your opportunity to fully communicate everything you need to share with your tax pro and reduces both software and clerical errors as well.
5. Less Cost and Rework
Many laws and clarifications to laws have come out that could cause the need for some already-filed returns to be amended. This is not the fault of the tax pro.
Filing later reduces the chance that your return will need to be amended.
Please keep these advantages in mind if your tax professional has asked to extend your return this year.