For some companies, filing an extension is a strategy. For others, it’s just a habit
The March 15 deadline for filing corporate tax returns gets closer every day, and for many companies that raises the question, “Should we buy more time and file for an extension?”
Like most business decisions, there are pros and cons to consider. For insight on the key issues, Figures recently interviewed Tracy Mortenson, CPA, JD, director of federal and state tax at CCH, a Wolters Kluwer business.
You need to examine the facts and circumstances, Mortenson says. “Depending on your cash flow, you many not want to extend if you’re going to claim a refund or a loss carryback that might result in a refund for prior years. Obviously, the sooner you file, the sooner you’ll get your refund.”
Another reason to bite the bullet: You have to pay any tax due on March 15 anyway, and you might need to pay more than the tax that’s actually due, just to be on the safe side. “Otherwise you may end up owing a penalty when the final calculations are made,” Mortenson says.
Soft-dollar considerations: “Your staff can move on to taking care of other matters, rather than spending another six months on the tax filing,” she says. “The opportunity costs cannot be underplayed; consider other ways your resources can be put to better use.”
The argument in favor of extending can be equally compelling. “You have more time to get your paperwork in order, especially if you are waiting for information from third parties,” she says. You also have more time to see what plays out during the extension period.
“Laws or regulations may be promulgated that could impact the return and otherwise require you to file an amended return,” Mortenson says. Similarly, facts may come to light in your business that affect the best elections to make.
Another payoff: Your staff has more time to make sure everything is correct, and you can make better strategic choices. “You don’t have to make decisions with a gun to your head.”
“Whether or not you extend is not going to significantly impact the ultimate amount of tax owed in most cases,” Mortenson says. “Your decision will often hinge on ancillary factors, such as the availability of information or the most efficient use of staff time.”
However, if you are extending every year because you are forced to wait for information, or because “we’ve always done it that way,” it may be time to examine your systems and procedures. “A knee-jerk approach can be costing you time and money,” Mortenson says.
This story is from the CCH e-newsletter Figures, written specifically for corporate tax professionals. Figures offers tips, tricks and ideas about how to increase your organization’s productivity and efficiency. Every issue also features insights with a corporate tax professional