A tax extension grants you an additional six months to file your taxes. You’ll have more time to gather your documentation, file your forms and enlist a tax pro if necessary.
Filing an extension doesn’t increase your audit risk. Depending on your return, filing an extension may actually lower your audit risk, especially if you take the extra time to double-check all the information you provide on your return. Most audits stem from incomplete, inaccurate or missing information on tax returns.
At the same time, an extension could increase your overall tax liability. If you’re not able to pay your tax bill by April 15, you’ll begin to accrue interest and penalties on the balance until it is paid in full. If you find your tax bill to be beyond your reach, you do have the option of consulting with a tax advisor who can inform you of your options and possibly negotiate with the IRS on your behalf.
If you suspect you can’t file by the April 15 deadline, it’s still a good idea to estimate how much you’ll owe in taxes and to pay the balance on or before the April 15 deadline. You won’t have to hassle with late fees or penalties and you can concentrate on filing for your extension and gathering the needed documentation so you can file your return before the extension expires.
No one likes the thought of facing an audit, but you most likely won’t face an increased audit risk if you file an extension. While you’ll face late fees and penalties on your tax bill if you don’t pay by the April 15 deadline, an extension in and of itself won’t trigger an audit.
Just remember to provide all the requested information on both your extension request and your tax return, and double-check your figures for accuracy before filing your return. In terms of audit risk, it’s much better to have an accurate extended return than an incomplete or inaccurate return filed quickly on April 15.
The IRS is a popular target for urban myths that seem to have taken on a life of their own. It would stand to reason that people just want to file their taxes and get on with their lives, content to keep the IRS at bay by doing so. The good news is that IRS audits are less frequent than they used to be, thanks in part to budget cuts, and the staffing reductions that went with them.
The bad news is that almost anyone is at risk of an audit since the IRS randomly selects returns for audit. Even with the budget cuts and staffing reductions at the IRS some audit myths persist. Here’s a look at some of the most popular myths, and the truth behind them.
Myth: You’ll Get Audited If You Claim Multiple Exemptions. If you’re afraid to claim the exemptions to which you’re entitled, you could be cheating yourself out of a refund or tax credit. You could me missing out on a refund or tax credit for any of the following:
Travel, business, moving, or medical expenses
Fact: The IRS doesn’t audit returns with exemptions any more often than it audits returns without them. By not claiming the above exemptions, you could be denying yourself money to which you’re legally entitled in the form of a tax credit or a larger refund.
Myth: You’ll Get Audited If You’re Wealthy. If you’re a low-to-modest income taxpayer, you may think you’re in the clear. After all, why would the IRS go after someone who earns very little and who has little to no money to hand over to the government, right?
Fact: The IRS screens for false, misleading, or missing information on all returns, regardless of how much the taxpayer earns. The IRS selects returns at random.
Myth: You Won’t Get Audited If A Tax Pro Does Your Return. It’s easy to fall for this myth because tax return pros have extensive training in tax procedures, tax codes, and tax law. If anyone can get you out of an audit, they can, right?
Fact: A professionally-prepared return is no less vulnerable to an audit than a DIY return. Since the IRS selects returns at random, a professionally-prepared return is just as vulnerable to audit as a DIY return. While a tax pro can do a great job of thoroughly and accurately filing a complex tax return, that return is no less vulnerable to an audit.
Myth: Avoid an audit at all costs. Don’t respond to audit notices or any correspondence from the IRS. If you get audited, you’ll end up in jail in some cases.
Fact: Nothing can be further from the truth, especially the myths surrounding jail time. What will happen if you ignore IRS notices, however, is the IRS will be less willing to work with you if they have to hound you into responding.
If you do get an audit letter from the IRS, follow all the instructions on the letter, including instructions for submitting documentation or for reaching the IRS. Chances are, you’ll just be asked to clarify or confirm some of the information on you return, or to provide documentation supporting your claim of an exemption or deduction.
If you do end up owing money to the IRS, you can make payment arrangements if you’re not able to provide payment in the full amount.
Regardless of the outcome, an IRS audit is nothing to fear or avoid. While it’s certainly not anyone’s idea of fun, it’s not the torturous process you hear about in myths and rumors. Whatever you do, don’t duck the IRS.
There are many urban myths and horror stories surrounding an IRS audit. By arming yourself with the facts, you can determine which is truth and which is fiction. While budget cuts and staffing reductions have hit the IRS hard; they are still randomly selecting returns for audit regardless of your income level and whether or not your return was professionally prepared.
Whatever you do, don’t duck the IRS if they should come calling. Enlist a tax pro if you’re unsure of how to respond to an audit notice.
As with any automated technology, robo-auditing has created more problems than it has solved. This time-saving but impersonal approach has led to more and more honest taxpayers getting the short end of the deal in terms of selection for audit. Here are some ways to legally bypass the automated system:
File your return by snail mail: Sure, this may take longer and it could be weeks before you see your refund, but an actual person will screen your returns instead of the an automated system. He or she will still screen your return for errors or missing/incorrect information, but there is also the advantage of a real live human being reading your return: they are easily able to determine which information warrants an audit and which return doesn’t.
Use discretion when posting to social media: Tax evaders and fraudulent taxpayers who post humblebrags on social media about their extra money, possessions, cars and vacations will catch the IRS’s attention in no time.
First and foremost, be honest: The best way to avoid an audit–automated or otherwise–is to be honest and consistent when reporting your income on your tax returns. In doing so, the prospect of an audit shouldn’t worry you regardless of how you file your returns.
The IRS takes tax fraud seriously. If the IRS has reason to suspect the information on your tax return is fraudulent, you could end up facing an audit. By being honest and forthright with the information on your returns, you reduce your chances of your return getting flagged for an audit.