Many who have never filed an extension are cautious if they have to file one.  They are afraid that “bad things” may happen.  Tax extensions are nothing to be afraid of and may in fact be a good move.  First, extensions for tax returns are needed when there is not enough time or information to file an accurate return by the first due date of the return (for individuals this is April 15, but for corporations, this is March 15).  If there is money due, the due date cannot be changed.  Late payment penalties and interest still begin on the original due date, even though the IRS may not know what the calculation is until the final returns are filed.  You should mail in the estimated balance due with the extension to minimize or eliminate this penalty.

In many cases, it may be necessary to file an extension if you receive K-1′s for partnership or other business interests because that information is not available yet.  If there are questions about the accuracy of information, don’t be afraid of extensions.  It is better to wait and file with real information than to “guesstimate” the information.

There is also one other reason you may want to consider routinely filing an extension each year.  There have been several studies that indicate that you could be reducing audit risk by filing your returns later.  Amir D. Aczel, PhD, a professor of statistics, was once audited and it took him two years to get a no change conclusion.  He was not thrilled with the time this took and the IRS process so he decided to dig in and write a book about the process.  He surveyed several accountants on timing and research about audit risk.  He showed statistically in his book, “How to Beat the IRS at its Own Game,” that filing later reduces audit risk and the changes of being selected.

When asked about how to avoid an audit at a seminar of 500 CPAs, a former District Director of the IRS when asked about how to avoid an audit he said “pay your tax on time and file late. If you file late the service is just glad to get the return and get it processed…”

Is this fool proof?  I don’t know, but can it hurt you?  No, there is no reason that you cannot fully comply with your responsibilities as a tax payer and file by October 15 as required by law.  Do your part, but be smart.

Here are some good reasons not to procrastinate any longer in the filing of your 2007 tax return.

1) Get Your Refund on the Way. If you are entitled to a refund, why not get the ball rolling? The government is not going to pay you interest, so why are you giving them an interest free loan?

2) Plan For Your Payment. Even if you own taxes, you can go ahead and file your return now so that you can prepare for the amount you have to pay. Regardless of the date you file the return, the actual cash payment is still due April 15th.

3) Contribute your refund to your IRA. If you are able to make a contribution to a traditional IRA, you have until April 15th to make that contribution. You can file your taxes early, you may receive your refund (if you are due a refund) in time to help fund your IRA.

4) Plan Your 2008 Estimated Tax Requirements If you are one of the lucky individuals that is required to submit estimated tax payments to the IRS, you will know the amount of your required payment to that you can plan for it. It is due on April 15th!