Tax Extension Considerations

LPL Financial

There are good reasons for filing for a tax extension, from waiting for required documents to taking the opportunity to recharacterize an IRA contribution.

The IRS grants a free, automatic six-month extension to file your taxes every year regardless of the reason.

Pay Now, File Later: Why Consider a Tax Extension

With the April 17, 2018 tax return deadline looming, some investors may be panicking about filing their federal taxes in time. That’s particularly true for those awaiting their final 1099 Consolidated Tax Statement or other required documents.

If you’re among them, talk to your tax advisor. Determine if it’s in your best interest to file for a tax extension.

The IRS grants a free, automatic six-month extension to file your taxes every year regardless of the reason. Just be sure to file Form 4868 by the April 17 due date. (Check your state tax laws. Some states accept IRS federal extensions while others require a state-specific extension form.)

The caveat is that to obtain the extension, you must pay your full income tax obligation by the April deadline. Nonetheless, filing for an extension can offer significant benefits.


5 Benefits of a Tax Extension

The Benefits of a Tax Extension

Among the advantages of a tax extension is that it provides you with an additional six months to:

  • Finish your return.
    That may be the case if you’re still waiting for a Schedule K-1; a corrected 1099 Consolidated Tax statement; updated 1099-INT, 1099-OID, 1099-DIV, 1099-B, 5498, 5498-ESA, or 1042-S forms; and/or any related supplemental statements.
  • Organize and review your tax forms.
    It’s important to make certain everything is accurate and to ensure you’ve taken advantage of all available deductions and credits
  • Take advantage of any retroactive tax law changes.
    You’ll save the time and expense of amending your tax return if changes occurred after the April filing deadline.
  • Recharacterize an IRA contribution.
    If your IRA is funded by April 17, you can turn your traditional IRA contribution into a Roth IRA, or a Roth IRA contribution into a traditional IRA contribution. You can even use this provision to recharacterize a Roth conversion back to a traditional IRA.
  • Fund a retirement plan.
    If you’re self-employed, filing an extension gives you time to fund an SEP-IRA, solo 401(k) or SIMPLE-IRA. Solo 401(k) and SIMPLE plans must have been set up during the tax year, but you can fund them up to the extended deadline. An SEP-IRA can be both opened and funded for the previous year by the extended deadline.
  • Make important decisions.
    You’ll have more time to consider various elections on your return, such as taking a Section 179 deduction or choosing to carryback or forward business losses.

More Reasons to Wait

Filing for an extension can also save you from failure-to-file penalties. If you file your return more than 60 days after the due date, the minimum late filing penalty is $135 or 100 percent of the unpaid tax, whichever is less. The failure-to-file penalty also applies if you filed for an extension but fail to file by the extended deadline.

Pay That Bill

Remember: filing an extension doesn’t exempt you from paying your bill by the April 17 due date. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes.

If you’re contemplating an extension because you owe a considerable amount of money, you can request a short payment extension from the IRS. You’ll still pay penalties and interest, but at a lower rate. The IRS also offers installment agreements for taxpayers who can't pay their taxes by the due date. You’ll find more information on the IRS website.

Another option is to go ahead and pay your tax bill using a credit card or loan. The interest charges may be less than the combined penalties and fees you face if you pay late.

Consult the Experts

For any questions you have regarding filing for a tax extension or concerning any other tax matters, always consult your tax advisor. You’ll also find helpful, authoritative information at



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendatoins for any individual. 

To determine which course of action may be appropriate for you, consult your financial advisor.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.