Plenty of people put off filing taxes in April by getting a six-month extension. Of course, taxpayers have to pay any taxes owed by the April due date, so there’s usually no financial benefit to postponing the task until mid-October.
But psychologically, the added time makes a big difference to many filers.
2011 turns out to be a procrastinator’s tax-filing dream year. The April filing deadline was three days later because Friday, April 15 was a federal holiday, pushing the due date to Monday. And the millions of taxpayers who got an extension don’t have to get their tax returns to the Internal Revenue Service until Oct. 17 since the usual Oct. 15 deadline falls on Saturday.
Why we wait
Arthur J. Bangs, a licensed psychologist and professor of education at La Salle University in Philadelphia, teaches workshops to help people overcome procrastination. Over the years, he’s noted some trends.
“Some feel it’s safer to do nothing,” says Bangs. They think they can avoid making mistakes by putting off the task.
Others procrastinate when facing a job they’re unsure of how to perform, says Bangs. The end result is that complicated chores are pushed back in favor of easier ones.
Then there are perfectionists who put off doing things because they fear they won’t do it well enough, as well as the rebels who don’t want to follow someone else’s rules.
And, of course, there’s the excuse of, “I work better under pressure,” so these people put off things until the very last minute.
Sound familiar, taxpayers?
Tough tax cycle to break
“For me, if I’ve got enough time to get something done, then I’m going to take all the time I have to get it done,” says Jay Fleischman, a bankruptcy lawyer and managing attorney at Shaev and Fleischman in New York City.
Filing for a tax extension is not unusual for Fleischman, who then finds himself pushing the October deadline. “It becomes less and less important because it’s farther away,” he says, until the time his accountant “yells at me, ‘Now I really need that.'”
In reality, most of Fleischman’s tax information is already in his CPA’s hands, so it can be used to calculate the estimated taxes Fleischman pays each year.
So why does he usually get a filing extension?
“Part of the reason I do it every year is that I did it one year,” Fleischman says. “If I’ve got to file by Oct. 15, then April 15 seems like it’s right after that. Didn’t I just get my taxes done? Didn’t I just finish this? It kind of becomes this self-fulfilling prophecy.”
Fleischman is not alone.
According to a TurboTax survey, 30 percent of taxpayers who filed an extension for tax year 2009 waited until Oct. 1 to finish their returns. Most of those extreme tax procrastinators were men who filed a Schedule C to report income from their small businesses.
Prodding by preparers
Getting professional tax help doesn’t guarantee tax filing will be completed early.
“Almost all clients are tax procrastinators in some way,” says Kathleen Pakenham, a partner in the tax litigation practice group Cooley LLP in New York City. “It’s human nature.”
And putting off taxes doesn’t necessarily depend on a tax return’s difficulty. “It’s a matter of not wanting to deal (with it),” Pakenham says.
But oftentimes, the tax is not as bad as taxpayers fear it will be. “It’s the monster under the bed,” she says, “but the problem can be fixed or could have been resolved much earlier.”
Robert D. Flach wishes all his clients would take the earlier-is-better approach. Alas, that’s not the case for the Jersey City, N.J., tax professional who’s been in the tax preparation business for nearly 40 years.
“No matter what I do, it seems that each year I end up with 40 or so extensions,” says Flach. “It is not always the same 40 clients each year, but I do have about 10 or so clients who are extended consistently.”
When delays are justified
Some clients have legitimate reasons for postponing filing taxes.
Since certain dividends became eligible in 2003 for special capital gains treatment, almost all of Flach’s clients with brokerage accounts end up missing the deadlines he sets for them to get their tax data to him. That’s partly because financial institutions routinely send out preliminary 1099 tax forms with information breaking out qualified and ordinary dividends, and then weeks later send out corrected 1099s with finalized details of the earnings.
That in turn leads to filing extensions.
Getting an extension also is a good idea for self-employed taxpayers who need more time to open and contribute to a simplified employee pension, or SEP, retirement plan. The SEP’s deadline is April 15 unless you file for an extension, in which case it’s due by the October filing deadline.
Another reason to extend filing, says Flach, is when a taxpayer doesn’t have the money to pay all or any of the taxes owed by the April deadline.
“In this situation, it is extremely important that the client submit a timely extension request with whatever he or she can afford to send to avoid an excessive penalty for filing late,” says Flach.
That gives the taxpayer a few months to come up with the rest of the bill. There will be late-payment charges, but they are not as severe as the late-filing penalties.
However, don’t file for an extension because you think it will keep you from being audited.
“This is indeed an urban tax myth,” says Flach. “Extending your return will not reduce your chance of an audit. I had a client who filed his return in October and was still audited by the IRS.”
The best strategy is to figure out why you don’t want to finish your taxes, deal with that filing resistance and then buckle down and get your tax return to the IRS. Whatever the final result, you’ll be done, at least for a while, with your taxes.