05 May What tax return extensions really mean
Q. My CPA was very busy this tax season and she wanted me to do an extension — not because I didn’t give her what she needed but because she was swamped. Is that a bad thing?
A. There have been many theories thrown around over the years as to whether an extension is a good thing or not.
First, let’s clarify what an extension actually is.
The IRS and State of New Jersey allow for a six month extension of time to file your tax return, said Cynthia Fusillo, a certified public accountant with Lassus Wherley in New Providence.
Filing an extension will give you until Oct. 17, 2016 to complete your 2015 return.
“An important thing to note is that an extension does not allow more time for you to pay what you owe,” Fusillo said. “Your tax balance for 2015 was still due to be postmarked by April 18, 2016.”
In your case, your CPA may have had her reasons for extending.
Fusillo said those reasons could include the level of complexity of your return, the volume of returns she prepares, or even the amount of time left from when you provided your tax data to the un-extended due date.
“Many firms, including my own, give clients a deadline for providing complete information in order to receive an un-extended return,” she said. “This aids in managing work-flow and prevents rush jobs. In other words, if you provide complete data by a certain date you are going to get your return on time.”
Fusillo said there may be benefits to extending.
“Some benefits of extending are more time to contribute to a self-employed retirement account, such as a SEP-IRA, Solo 401 (k) or SIMPLE-IRA, and less chance that an error will be made than if the return was rushed,” she said. “Extending can also reduce the fee for tax preparation services when compared to filing a rushed return.”
Many firms will charge a premium if you insist that they complete your return on short notice, she said.
One notable disadvantage to filing an extension is that it will delay the issuance of any refund you are due, Fusillo said.
“However, and very important to note, an extension does not increase your chance of being audited,” she said. “In fact, filing an incomplete or inaccurate rushed return would more likely cause a red flag.”
Going forward, if you typically have most of your tax data early and usually only have to wait for one or two items, it’s smart to get the bulk of the info to your CPA so that she can work on the return early and then simply add the one or two missing items when they come in, Fusillo said.
“Without knowing the date you provided your info and the work load of your particular CPA, it’s impossible to know if your return should have been extended or not,” she said. “However, understanding industry practice should help you in determining if you were treated fairly.”
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This post was first published in May 2016.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.