18 Reasons for Obtaining Extensions

18 Reasons for Obtaining Extensions

Those that know me know that I do not like extensions. However, there are valid reasons for extensions and here are eighteen of them. If you know that you will be filing for an extension, do not wait until the last minute. Do it now in a less-rushed atmosphere.

1. You did not receive some K-1s or 1099s or other documents with information that you need to report
2. You did not receive letters confirming charitable contributions that are required to be in your possession by the due date of your tax return. This includes certified appraisals for contributions of property over $5,000
3. You have pending litigation or a tax audit and reporting certain transactions might prejudice your position or you are awaiting resolution which might affect an item on this year’s return
4. You might want to reverse a 2015 IRA conversion to a Roth IRA and would rather not file by April 18. An amended return would not be necessary if you decide to reverse the conversion by October 17, 2016
5. Circumstances may have prohibited you from assembling all your information properly. This might include a medical emergency or searching for tax basis of securities or assets that have been sold
6. You have a complicated situation and you feel it is best to have an extension so the preparer would have more (and more relaxed) time to devote to your return
7. You might want to open and/or fund a SEP pension plan. By extending, you will have until October 17 to make your decision. If you have a Keogh, 401k or SIMPLE plan, the contribution for last year can be made by the extended due date, but the Keogh and 401k must have been established by the previous December 31 and the SIMPLE by September 30, 2015 (crazy and inconsistent rules for basically the same type of deductions)
8. You did not file last year’s return and feel that filing this year’s return before the prior year will cause extra IRS attention to you. However, irrespective of what you did not file, you should file this year’s return on time which would be the extended due date. Note: I wrote about how to handle missed tax filings on Feb 20, 2012 and you can retrieve this in this blog’s archives
9. Those with a 2015 installment sale might want to wait as long as possible in 2016 to consider electing out of the installment sale if your 2015 taxable income is substantially lower than what is expected for 2016 or later years
10. People with net operating or other losses that can be carried back might want to delay filing to determine if they should elect to forego that and carry it forward
11. The extension can delay elections that are made on the first-filed tax return reporting certain new transactions
12. The extension is for a gift tax return where not all the issues are clear – including generation skipping elections and spousal consents, or where basis information is not readily available or discount valuations are not completed
13. There is a high risk of audit – filing an extension might reduce the chance of an audit. Note that it will not lower the chance of a computer generated notice questioning an item or picking up income that was not reported
14. If your tax preparer is unable to devote the necessary time to get the return ready to file on time
15. An error is discovered on a prior year’s return and additional time is needed to research and correct it, and the current year’s return might be affected by the change
16. You will be out of the country during the filing period and will not have adequate time to thoroughly review your return
17. You did not receive a W-2 wage statement from an employer. This can be a problem, but the IRS has Form 4852 Substitute for Form W-2 to recreate your version of your W-2
18. A suggestion to avoid filing an extension when you did not receive a K-1 that will report an insignificant amount is to estimate the amount and file on time. When you file next year’s return adjust the amount for the difference in what you reported and the actual K-1 amount

Comment: The extension is to delay the filing, not the payment. Payments must be timely made. A tip for those filing extensions that also have to pay estimated tax is to include the first quarter estimated payment with the extension payment. In the case where you underestimated your 2015 tax for the extension, the added first quarter payment would reduce that penalty which is greater than the penalty for the underestimated 2016 tax. Also, do not forget to also file a State extension if applicable.