Not everyone who files an extension is procrastinating. In fact, many are making a wise financial decision.
This post is in partnership with Entrepreneur. The article below was originally published at entrepreneur.com.
It?s tax season again. No matter how organized I am, each year I find myself scrambling to meet the deadline. I always thought this last-minute crunch was normal?sure, I?d procrastinate, but high achiever that I am, I?d forfeit sleep before asking the Internal Revenue Service for more time.
However, given the complexity of the 73,000-plus page U.S. Income Tax Code, I?ve come to realize that not all of the 11 million Americans who file extensions are procrastinating. In fact, many are making a wise financial decision.
Tamara Sipos, a CPA and partner at Gallina LLC, a San Francisco-based accounting firm, says there are two key reasons it can pay to ask Uncle Sam for an extra six months to file your tax returns.
Max out your IRA
While filing an extension will not affect the April 15 deadline to claim IRA contributions, it does give you an extra six months to fund your Simplified Employee Pension (SEP-IRA). That cushion may be just what you need to save up enough cash (as much as $52,000 for 2014 and $53,000 for 2015) to fully fund your SEP-IRA for the year.
Moreover, an extension will give you significantly more time to reverse a change to your IRA. Since income limits on IRA conversions were lifted back in 2010, it?s common practice for individuals to convert their traditional IRAs into Roth IRAs to take advantage of tax-free retirement distributions.
However, converting your IRA creates a tax liability, and by the time you file your return, it may be a decision you regret (especially if the market underperformed and/or your income exceeded your expectations and elevated you into a higher tax bracket). But all is not lost.
?Thanks to an idiosyncrasy in the tax code, if an adverse tax situation was created by your conversion, you get a do-over and can ?re-characterize? (aka reverse) the entire transaction,? Sipos says.
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