Filing a Tax Extension – Pros and Cons

As we near the 15th April, we hear more and more people either filing or extending the due date to file for them. However, we are seeing the reports that tell us that the tax returns filings in 2025 are down compared to the same date in the preceding tenures. This can be comprehended to the fact that people are not ready to file the taxes yet. But is it the right move for you? Come let’s have a look at how we all can turn the extension season to our advantage. 

What does Tax Extension mean? 

Extension in simple terms means to have an extended due date rather than the normal due date of filing the return. Extension gives an entity 6 months of additional time to file the return. Below is a simple table showing the normal and the extended due dates for different types of entities: 

While we hear our parents tell us to file the return on time, it is also noteworthy that there are more advantages to filing an error-free return a little late than filing a defective return in a hurry. 

How difficult is filing an extension? 

IRS has made the application for filing a tax extension simple and short. It is also, to a lot of extent, non-questionable. It involves filing a 1-page form to the IRS. As long as one follows the steps and files an accurate form in a timely manner, extension is automatically granted (IRS no longer sends a notification that the extension has been approved. It will only notify if the request is disallowed, which generally happens when the form is filed with some error/mismatch or late filing). 

For Individuals (1040 Filers), Form 4868 is to be filed and for the businesses (Corporations, Partnerships, etc.) Form 7004 is to be filed. It is to be noted that the forms are to be filed before the respective due dates of filing the return. 

Read Also: Mastering Tax Season: Top Tips for Keeping Your Finances in Order   

Pros of filing a Tax Extension 

1. Reduces risk of errors 
   If you are dealing with unavoidable and uncontrolled reasons, It is always a better idea to file the return in the extended period as it would give more time to review and thus reducing the possible errors that could result from rushing the return. 
2. Enough time to gather Documents
   If you are missing or waiting to receive important documents like 1099s or K-1s from the concerned parties, opting for extension and filing a 100% complete return in the extended period is almost compulsory and also, safe. 
3. Getting the books cleaned
   If you are one of those filers who want to be extra careful and wants to double check every single minute detail of everything, the extra time is a treat for you. The extra months give you the exact tidiness you need to give it the perfect finesse. This extra time is also used in the best manner to catch as many deductions as possible that one can get by vetting their own bank statements in detail. 
4. More time to contribute to SEP-IRA (Retirement contribution)
   For Employers and self-employed individuals- If you obtain an extension for filing your tax return, you have until the end of that extension period to deposit the contribution to the SEP created, regardless of when you actually file the return. 
5. Reduces risk of Audit
   Although debatable, it has been experienced by some that compared to the early filers, the returns filed nearer to the last date of filing are reviewed less harshly by the IRS. 

Cons of Filing a Tax Extension 

1. Taxes are still to be paid on or before the original due date
   Although the option of tax extension gives more time to the taxpayer, it does not delay the tax payment liability. This means that even if the return is filed after the original due date, the total tax payment liability has to be paid and cleared with the IRS well within the original due date.
2. Contributions are still to be done in time
   The IRS gives us the extra time to file the returns however does not allow late payment of contributions that one has to make in order to take the deduction. The payments for those contributions are still to be done by April 15th. Few examples of the same are Roth IRA, HAS Contributions, etc.
3. Loan applications are delayed
   The banks and Financial Institutions generally require the updated returns to be provided to them. If the return filing is delayed, it results in delaying of business or mortgage loan approvals and thus affecting the disbursement. 
4. Refunds are delayed
   IRS gives the early filers the preference of early processing of refunds. The late filers must wait a little longer to receive the refunds. 
5. Some State Extensions have different rules
   Some states do not automatically grant extension and require separate extension form to be filed different from a Federal one. This results in complication and compliance for the taxpayer. 
6. Frequent late filers are red flags
   If there is no reason to file late, one should not consider the extension because if you always extend the filing, it might possibly be a bad highlight for the IRS. 

 Conclusion 

If you are all not ready in terms of collecting documents, catching deductions, waiting on some information that is necessary to file the return Or dealing with something which makes it very difficult to file the return on time, going for extension is a safe idea. 

As long as the paying of taxes is concerned, it is the best decision to pay before the original due date as paying late attracts penalties that cannot be avoided. The payment of taxes can be done on an estimated basis where KMK’s role as a tax consultant comes into play. 

Also, if you are filing the extension due to the books not being ready by the time the return filing is due, it is time to change the angle of keeping the books up to date. Let KMK be your next accountant and the tax advisor which will be the best move you can make to do everything right. Do reach out and we would be the happiest to assist you!