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When an Extension May Make Sense

Friday, August 31, 2018

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While you should try to file a tax return by April 17, sometimes delaying your filing date until Oct. 15 with a tax extension makes sense.

When to file an extension

  • Missing or incorrect information. If one of the forms you need to file your return has an error on it, it is often better to receive a corrected form before filing.
  • Recharacterizing Roth IRA rollover amounts. If you’ve rolled funds from a traditional IRA into a Roth IRA, you may want to reverse it later if the investments lose value. This so-called recharacterization process can be done up to the extended tax filing date of Oct. 15, and in many cases it makes sense to wait until then. Note that 2017 is the last tax year you can use the recharacterization process, which was eliminated for future years by the Tax Cuts and Jobs Act.
  • Making self-employed retirement donations. The self-employed can use an extension to buy time to fund a SEP IRA. This extended time frame does not apply to traditional IRAs and Roth IRAs.
  • Avoiding late-filing penalties. If you fail to file a tax return, two tax penalties come into play: a late-filing penalty and a late-payment penalty. By filing an extension, you can push out the potential late-filing penalty for another six months even if you cannot yet pay the tax.

One thing to remember: an extension to file your return is NOT an extension to pay your taxes. If you owe any tax to the IRS, pay it by April 17 to avoid penalties.

Questions? Get in touch with us!