Is It Better to File an Extension or Amended Return?

When approaching the annual tax deadline, many people are not ready to file a complete and accurate return. This leads to confusion between two IRS procedures: filing for an extension and filing an amended return. Each serves a unique purpose and is appropriate under different circumstances. This article clarifies when to use each option.

Understanding a Tax Extension

A tax extension provides more time to submit your tax forms to the IRS, pushing the deadline from mid-April to mid-October. This is appropriate for individuals missing information, like a late Schedule K-1, or for those with complex finances requiring more time to report accurately. An extension allows for a more thorough preparation of the tax return, which helps prevent errors.

An extension only extends the time to file, not the time to pay the tax you owe. You must estimate your tax liability and pay that amount by the original April deadline to avoid penalties and interest. Failing to pay on time can result in a failure-to-pay penalty of 0.5% of the unpaid taxes per month, up to 25%. An extension helps avoid the more severe failure-to-file penalty of 5% of unpaid taxes per month. For returns filed more than 60 days late, the minimum penalty is the lesser of $510 or 100% of the tax owed.

Understanding an Amended Return

An amended return is used to correct errors or omissions on a tax return that has already been filed with the IRS. Its purpose is to fix mistakes, not to get more time. Common reasons for amending include forgetting to report income, missing a deduction or credit, or receiving a corrected Form W-2 or 1099 after filing. It is also used to change your filing status or the number of dependents claimed.

Filing an amended return can result in a larger refund or additional tax owed. If you owe more tax, interest is calculated on the unpaid amount from the original due date, and a late-payment penalty may also apply. You have three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later, to file an amended return for a refund.

Deciding Which Option is Right for You

The choice depends on one factor: whether you have already filed your tax return. If the tax deadline is approaching and you have not yet filed, an extension is the correct action. An extension provides a formal way to delay the filing deadline without a failure-to-file penalty, as long as you have paid an estimate of your tax due.

Conversely, if you have already submitted your tax return and discover an error, your only option is to file an amended return. This situation can occur if you receive a corrected tax form after filing or find a mistake in your records. An amended return is the formal process to correct the previously submitted information.

A flawed strategy is to knowingly file an inaccurate return before the deadline, planning to amend it later. This approach is strongly discouraged because when you sign your tax return, you do so under penalty of perjury, affirming that the information is true and correct to the best of your knowledge. Filing a return you know to be inaccurate violates this declaration and can lead to penalties. When you cannot file accurately by the deadline, the correct action is to file for an extension.

How to File a Tax Extension

To file for a tax extension, you need your personal information, such as your name, address, and Social Security number. You must also estimate your total tax liability for the year and the amount you have already paid. This determines if you owe additional tax, which should be paid with the extension request to avoid penalties.

The official document for this request is IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Filing this form, available on the IRS website, grants an automatic six-month extension to file your return.

You can file Form 4868 electronically using tax software or through the IRS Free File program. Another method is to make an electronic payment for your estimated taxes and indicate it is for an extension. You can also mail the completed Form 4868 to the address specified in the form’s instructions.

How to File an Amended Return

To file an amended return, you must gather a copy of your original tax return and the new or corrected information, such as a revised Form W-2. You will also need any tax forms or schedules that will be affected by the change.

The required document is IRS Form 1040-X, Amended U.S. Individual Income Tax Return, available on the IRS website. Form 1040-X uses a three-column format: Column A for original figures, Column C for corrected figures, and Column B for the difference. You must also provide a written explanation in Part III of the form detailing the reasons for the changes.

For recent tax years, you can e-file Form 1040-X through most tax software, though older tax years may require mailing a paper copy. When mailing, include the completed Form 1040-X along with copies of any new or changed forms that support the corrections. After filing, you can track the status of your amended return through the “Where’s My Amended Return?” tool on the IRS website. Be aware that processing can take several months.