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It seems every year most people want to have their taxes filed by April 15th, and nobody wants to file an automatic, no questions asked extension till October 15th. It seems to us as many feel they are doing something wrong if they do not file by April 15th. Many believe if you extend your taxes, the secret IRS police will be waiting around to review your late return with EXTRA scrutiny. Are these feelings justified? The answer is YES if it were still 1975, but it is 2019, and that is no longer true. People’s emotions are usually driven by some level of truth, but over time, truth can become a freeze frame of the past. The fear of tax return extensions is no longer valid, and today most taxpayers would benefit from an extension.
In fact, most people should welcome an extension, as opposed to having their return filed immediately, unless they expect a large refund and need the money. This is evident when considering the large volume of returns that need to be processed in what has become a very small window and the amount of time that a preparer can spend on each return, as well as the opportunity for new or revised information (Corrected 1099’s) to come about after the earlier part of the season.
Most tax forms for employees, retirees, and depositors arrive by February 15th, at the earliest. Approximately 240,000,000 returns are filed each year and, of that, 140,000,000 are personal returns. Corporate returns are due March 15th, while trust/calendar-year estate and partnerships, like individual returns, are due April 15th. Of the 140,000,000 personal tax returns to be filed for 2014, 90,000,000 were done by April 3rd, and another 30,000,000 were likely done by April 15th leaving only 20,000,000 on extension till October 15th. Speaking from experience as a CPA firm (who does many a return between February 15th and April 15th), the volume of work is quite intense. Because 15% of our returns have been extended to October 15th, we have 6 months to complete them. However, in the last 2 months, we have completed 85% of our returns. So, given that extensions are automatic with no questions asked, removing your return from the 60-day mad rush can be a very good thing.
In addition, Investors should always consider the logic of an extension. Since brokers are now required to report cost basis, two main issues come up for returns filed by April 15th. First, many of these firms in an effort to provide information both accurately and by government-mandated deadlines, will release 1099 composites by the deadline and then release “Corrected” 1099s multiple times through the end of March. It is not uncommon for partnerships and estates to deliver K-1’s as late as early April. Returns completed earlier in the season could need revision or amendment as a result, adding to your cost of preparation. The second concern is the accuracy of basis information. While they are required to keep basis, they may not know you as well as your preparer or advisor, and important basis adjustments may be overlooked or even missing. These are issues you want your preparer to take time to review.
To support the merit of extending, the CPA associations have been lobbying with Congress for years to extend the due date of returns, providing more time to process the brokerage and partnership tax information which is being received later and later each year. Congress, however, seems to be resisting such changes since it would wreak havoc on their very poorly managed cash flow (i.e., they need the money).
All in all, an extension may be a very good idea if you are an investor not in need of an expected large refund and particularly if you prefer your return is not just being pushed through the preparers with another 120,000,000.
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