Feel guilty about filing an extension? Here is why it is not only good, but essential for business!
The IRS doesn’t give anyone bonus points for filing early. As emotionally satisfying as filing by the deadline is, your business may need a little wiggle room to focus on more important activities. As we learned with the SVB crisis – anything can happen, but that’s not the real reason we file extensions pro-forma – you may not know the benefits of filing a superseding return.
The IRS does not view returns filed on extension differently. In fact, the extension gives you the option If a change needs to be made, that a ‘Superseding’ return can be filed prior to the extended due date, and will be considered an ‘Originally filed return.’ Clients say to us, “We don’t want to file an extension! We can always file an amendment!”, but that’s not always an option. Amendments have rules and actually ARE scrutinized more closely by the IRS. It may not even be your fault, but a provider may issue a revised 1099, or you may need to file elections that you missed. That superseding return allows you to do that and change the elections, where an amendment does not.
Here are some of the most common reasons to extend:
- More Time to Prepare: Filing for an extension gives a business more time to prepare their tax return properly. Sometimes, businesses may not have all the necessary information or documents required to complete their tax return by the original deadline.
- Avoid Penalties: If a business fails to file their tax return by the original deadline, they may face penalties and interest charges. Remember though – tax is due when earned (during the year) not when filing. So making a payment with the extension can help prevent penalties from missed estimated tax payments.
- Change in Business Circumstances: Sometimes, a business may experience unexpected changes in their financial situation or tax circumstances that require additional time to properly assess and report on their tax return.
- Overloaded with Other Tasks: Businesses may sometimes face situations where they are overloaded with other tasks or priorities that require their immediate attention. Filing for an extension may give them more time to focus on other critical business matters before they have to deal with their tax return.
Meet The Superseding Return
The best reason to file for a six-month Extension is not for more time, but for that superseding return option. You may do your very best to gather all your information to file before the deadline, then what do you do when you get a Corrected 1099? When they change the tax law months after you file? When a huge expense that was omitted seems to appear out of nowhere?
Sadly, there is no trophy for filing by April without an extension, but there are real downsides to not having the extension in place even if you do file on time. We are especially advising many software startups to hold off filing early this year as there are new tax rules in place for software R&D costs that have a huge negative impact. Due to SVB collapse, there is a bill before Congress to change the rule, so if Section 174 is repealed, it will change tax due for many in Tax Year 2022 – and that decision may not come for months.
Many people take it as a point of pride to not file on extension, but there are solid business reasons for doing this that allows for more flexibility without penalty if you pay the tax on time.
So, shake off that shame – the extension is your friend. You may not even need it this year, but when you do, you’ll be happy you did!
Buy your extension NOW! And if you’d like us to do your tax returns, but need a bit more time, remember that Cleer does free tax extensions for clients who buy a tax prep package.
