It’s serious now. Your return is due the day after tomorrow, and you just haven’t had the time to get all your 1099s together. Or that pesky K-1 from that oil well investment still hasn’t come in. Or you just realized you need to go back to 1988 to figure out your basis in that mutual fund you sold last year.
It’s time to file your extension.
But that means I’ll be audited! Nonsense. The IRS does not just ignore the millions of returns that come in by April 15 and then grab the stragglers that come in later. It’s what’s on your return that determines whether you’ll be audited, not whether it’s extended.
But I want the statute of limitations to run!. If there’s something so bad on your return that you need to sneak it by rather than wait a few weeks to get it right, you may have a bigger problem than your extension. In any case, I’ve yet to see somebody pay extra tax on an exam because their statute was still open because of an extension, and I’ve been doing this since 1984. I’m sure it happens, but it’s rare.
If you make a mistake because you hurry a return through, you increase your risk of exam far more than any extension could.
Extensions also give you more time to deal with other important tax issues, including:
- Electing the five-year NOL carryback for 2008 for small business losses.
- Funding a 2008 qualified pension or profit-sharing plan contribution, including a Keogh plan.
- Establishing and funding a SEP, or Simplified Employee Pension.
- Recharacterizing a 2008 Roth IRA contribution as a regular IRA contribution.
- Withdrawing excess IRA contributions for 2008.
How to extend.
You can extend a 1040 with Form 4868, postmarked no later than April 15. Extensions can also be electronically filed.
You should make sure you have at least 90 percent of your expected tax paid in with your extension to avoid penalties. If you are an estimated tax filer, bump up your extension payment by enough to cover your first quarter estimate. That way you have a little cushion in case you owe more on the extended return than you anticipate, and you can apply the overpayment to your first quarter 2009 taxes.
Link: IRS Topic 304, Extensions of Time to File Your Tax Return.
Tags: extended returns, IRA, Roth IRA, Tips for filing 2008 returns
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Can you tell me if filing an extension also reduces the chance of an audit (my CPA told me so)? On the theory that the IRS audits just so many returns, and the “slots” fill up before October 15 for that years quota of audits. So, by filing late you are less likely to be chosen for an audit in that year because there are no more slots available. Sounded like a reasonable theory to me.
Tim, while the IRS factors for selecting returns are a closely guarded secrets, I doubt very much that they fill up “slots.” Except for math error notices, you don’t see real exams get underway until after the extension season, so all return are fair game. The work schedule of the examiners isn’t keyed to filing season, so there’s always someone available to audit a return with a high “DIF” score, even if it was filed on October 15.