The din of taxpayers getting their returns prepared is often punctuated by the comment:
“I am in no rush to file because I owe”
Ok, it’s your prerogative to file at your own leisure and pleasure but be mindful of the fact that an application for an extension of time to file later than the usual April 15 deadline is exactly that and no more.
It is an extension of time to file and not an extension of time to pay!
If your tax returns will result in a refund, delaying to file will only mean that you are allowing your money to remain with the IRS a bit longer (oh no they are not complaining!) only to receive it at a later date not only “interest-less” but, thanks to the time value of money, having less purchasing power.
On the other hand, if your tax returns will result in you owing the IRS, an extension of time to file will protect you from a late filling penalty however interest on the amount owed and penalty for failure to pay on time will come knocking at your door. The further away from April 15 the more painful will be these charges.
There is an almost comical misconstruction that, where taxes are owed, the longer one waits to file the longer the IRS will be kept in the dark about the debt and by so doing avert any interest and penalty that would otherwise accrue. This brings to mind Big Bird of Sesame Street who, when playing hide and seek, perpetually sticks her head behind some object leaving 95% of her sunflower-like plumage in full view and never failing to be flabbergasted that she is so easily found.
The anecdote is given of a taxpayer who, knowing that he owes taxes, decides to submit his returns at the end of the automatic six-month extension to file. Feeling that he has blind-sided the IRS he prepares his returns and encloses a check for the full amount owed only to receive correspondence from the IRS acknowledging the payment and presenting a bill for accrued interest and penalties for the period between the April 15 payment due date to the time of filing.
There may be good reasons to delay making payment until six months or so after the due date. Chances are your funds are tied up in very lucrative investments where the returns outweighs the IRS interest and penalty, or you may be just a few months away from that age when withdrawals from retirement funds are not subjected to the 10% early withdrawal penalty.
Having knowledge of these tax tidbits can go a long way in preventing costly unpleasant surprises.
Be an informed taxpayer.
Call and let’s talk tax planning!