Running Out of Time to File Your Taxes? Here’s Why an Extension May Be the Smarter Move
There is a particular kind of pressure that sets in during the final days before the tax filing deadline, and it’s equal parts urgency and avoidance. For many taxpayers, the realization that they’re up against a hard deadline, paired with the hope that it can still be wrapped up quickly is a source of anxiety.
For many taxpayers, especially those with increasingly complex financial lives, this is the moment when the temptation to “just get it done” using a do-it-yourself software solution sets in. But in reality, rushing through your tax filing might be the most expensive financial decision you can make.
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The tax code does not penalize you for filing later—provided you follow the proper procedure. It does, however, penalize you for filing incorrectly. That distinction is what makes the automatic extension one of the most underutilized tools available to taxpayers.
Tax preparation is not merely a clerical exercise. It is an act of reconciliation across income streams, investment activity, deductions, credits, and prior-year carryforwards. And as income rises along with complexity, there becomes little margin for error.
A tax filing can appear straightforward on the surface while concealing multiple areas where small reporting mistakes lead to meaningful financial consequences. For instance, misreporting the cost basis of stock compensation or overlooking a carryforward loss doesn’t just affect this year’s return. It can distort future filings as well.
By contrast, filing an extension creates space to gather documents, ask better questions, and ensure that what gets filed is not only complete, but accurate. But be aware, an automatic extension gives you additional time to file your tax return, not additional time to pay the amount you owe.
When you file for an extension, you are effectively asking the IRS for more time to prepare an accurate return. In response, the IRS grants an automatic six-month extension of the filing deadline, moving your deadline from April 15 to October 15. However, the IRS still expects any taxes owed to be paid by the original April deadline.
If you owe money and do not pay by that date, interest and potential penalties begin to accrue, regardless of whether you filed an extension. Therefore, if you have a reasonable expectation that you will owe, it is prudent to submit a payment along with your extension request.
The process itself is relatively straightforward, but timing is critical. To obtain an automatic extension, you must submit Form 4868, either electronically using IRS Free File, or through most tax software providers. You can also submit the form through a tax professional. Regardless of the method, the key requirement is that the extension request must be filed (or postmarked, if mailed) by the original April 15 tax deadline.
It is also important to note that while some states automatically honor a valid federal extension, others require a separate state extension form, which must also be submitted by the same April deadline.
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Malcolm Ethridge is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. His areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
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Disclosures:
The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your tax and legal advisors before taking any action that could have tax and legal consequences.
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