Individual Income Tax Extensions: A Necessary Evil?

Every year large numbers of individual income tax returns are put on extension. For many people extension is a dirty word. Unfortunately, in a busy tax preparation business extending individual income tax returns is unavoidable. The reason for this is due in large part to the timing of certain deadlines.

In order to calculate wash sales the schedule D cannot be completed until the end of January. Also, employers are not required to distribute W2’s until the end of January. Both of these factors reduce the amount of time to prepare the return from 3 months 15 days to 2 months 15 days.

Brokers are not required to distribute 1099’s until the end of February. If the form 1099 is incorrect the corrected version may not come out until March. This reduces the amount of time to prepare the return to 1 month 15 days or maybe even less.

The deadline for corporate income tax returns is March 15th as opposed to the individual deadline, which is April 15th. Therefore, the preparer is forced to deal with the corporate returns before the individual returns. This reduces the amount of time to prepare an individual return to less than one month.

If you are the member of a partnership the preparer will need to have the K1 from the partnership return before completing your return. The IRS does not require the partnership to provide the K1 until April or if an extension is granted October. This being the case it may be impossible for the preparer to complete your individual income tax return by the April 15th deadline.

The factors listed above illustrate tax-preparers have a small window of time between receiving all information needed and April 15th deadline. This window in many cases can be less than a month. For a tax-preparer with hundreds of clients it is impossible to complete everyone’s individual income tax return within this small window of time.