12 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 twelve of them:
- You did not receive K-1s or 1099s or other documents with information that you need to report
- You did not receive letters confirming charitable contributions that are required to be in your possession by the due date of your tax return
- There is pending litigation and reporting certain transactions might prejudice your position – or – you are awaiting resolution which might cause or affect an adjustment or estimate made for last year
- You might want to reverse a 2012 IRA conversion to a Roth IRA and would rather not file by April 15 so an amended return would not be necessary if you decide to reverse the conversion by October 15, 2013
- Circumstances may have prohibited you from assembling all your information properly. This might also include searching for tax basis of securities or assets that have been sold
- You have some complicated situations and you and your tax preparer feel it is best to have an extension so the preparer would have more, and less rushed, time to devote to your return
- You might want to open and/or fund a SEP pension plan. By extending, you will have until October 15 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, 2012 (crazy and inconsistent rules for basically the same type of deductions)
- 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 last year. You can read about that here.
- Those with a 2012 installment sale might want to wait as long as possible in 2013 to elect out of the installment sale. They would want the time to see if they get paid and to better assess the likelihood of receipt of the remainder. The 2012 capital gains rates are much lower than 2013 and later years. Alternatively, those with 2012 installment sale gains that can be carried over to 2013 might want to keep the installment sale if they expect to have 2013 short or long term capital losses that can shelter these gains
- People with losses that can be carried back might want to delay filing to determine if they should elect to forego that and carry it forward
- The extension can delay elections that are made on the first-filed tax return reporting certain transactions
- The extension is for a gift tax return where not all the issues are clear… including generation skipping elections and spousal consents, the basis information is not readily available or discount valuations are not completed
Comment: The extension is to delay the filing, not the payment. Payments must be timely made. A tip for those filing extensions who would 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 2012 tax, the added first quarter payment would reduce that penalty which is greater than the penalty for the underestimated 2013 tax.