It’s not always the case that filers complete their taxes on time. For some folks, it’s a matter of procrastination. For others, it boils down to last-minute personal emergencies that render them unable to get the job done.
Thankfully, the IRS offers some leeway in this regard. Filers who can’t complete their taxes on time can request an extension, which buys them an extra six months to submit their returns. Better yet, you don’t need to justify your reason behind that request to the IRS — the agency doesn’t really care why you want more time as long as you ask for it by the official filing deadline, which, this year, is April 15. And if you fall into any of these categories, there’s a good chance you’ll wind up needing more time to do your taxes.
1. You’re still waiting on a K-1
If you’re invested in a partnership or S-corp, you’re supposed to receive a Schedule K-1summarizing your share of its earnings or losses. Most businesses are supposed to issue K-1s by March 15, but it’s not unheard of for these documents to come in after that deadline. If you’re missing a K-1, you’ll probably have no choice but to ask for more time to get your taxes done.
2. You’re not sure whether you qualify for the new pass-through deduction
If you own a business with a pass-through entity, like an S-corp, you may be entitled to a 20% deduction on that business’s income. But depending on your income level and line of work, it may not be so clear as to whether you’ll snag that deduction or not. If your income is below $157,500 as a single tax filer or $315,000 as a couple filing jointly, you should qualify off the bat. But if your earnings exceed these thresholds, you may be excluded from the deduction depending on the nature of your business.
Service businesses, for example, like doctors, lawyers, financial advisors, and accountants, begin to have their allowed deduction taken away once their earnings exceed the aforementioned thresholds. The same holds true for performing arts professionals and any business whose primary asset is the reputation or skill of one or more of its owners or employees (whatever that really means).
Because so many tax professionals themselves are still unsure as to what types of businesses qualify for the pass-through deduction, filers in this scenario might need more time for that to get sorted out. Otherwise, they risk claiming a deduction they’re not entitled to, or missing out on a lucrative deduction no one would willingly want to forgo.
3. You’re not sure if you should itemize
Each year, most tax filers take the standard deduction when filing their returns rather than itemize their deductions. And because the standard deduction nearly doubled in 2022, we’ll probably see even fewer people itemize this season.
That said, if you’re right on the cusp of being able to itemize, you might need more time to comb through your records for additional deductions, or consult with a tax professional and see if he or she can eke out enough additional savings to make itemizing worthwhile. For example, if you’re a married couple filing jointly, you’re entitled to a $24,000 standard deduction for 2022. If you paid $13,500 in mortgage interest and can claim $10,000 against state and local taxes (including property taxes), you’re pretty darn close to that $24,000. At that point, it might pay to see what other deductions you can claim, whether it’s charitable contributions (keeping in mind that you can deduct the cost of goods donated as well as cash donations) or medical expenses.
Be careful when requesting a tax extension
Even if you don’t fall into any of the aforementioned categories, you might want more time to do your taxes anyway. But be aware that while a tax extension will extend the deadline to file by six months, it won’t extend the deadline to pay. If you owe the IRS money for the 2022 tax year, you’ll start accruing interest and penalties on any unpaid sum you’re liable for once April 15 comes and goes. Therefore, at the very least, it pays to take a stab at your taxes, attempt to estimate the amount you owe, and pay that sum to the IRS in time.
Source: The Motley Fool