Smart Reasons to Extend Your 2025 Tax Return

The deadline for filing individual income tax returns for 2025 is April 15, 2026. If you haven't yet filed, you might be considering filing for a six-month extension.

This can be a smart move if you don't yet have all the information needed to prepare your return — or if you're still digesting all the tax law changes that went into effect under the One Big Beautiful Bill Act (OBBBA). Some of the recent law's provisions went into effect in 2025, but others take effect in 2026, requiring careful evaluation of both current and long-term tax-planning moves.

Here's an overview of situations that might call for extensions, how to file for an extension and some potential drawbacks to consider.

Should You File for an Extension?

Over the past decade, filing for an automatic extension has become increasingly common among U.S. taxpayers. According to IRS data, roughly 10% to 15% of individuals request an extension each year, pushing their filing deadline from April to October.

Filing an extension can give you extra breathing room. This can come in handy if, for example, you haven't received all the paperwork (including W-2s, 1099s and K-1s) or finished all the necessary transactions to complete your 2025 federal tax return. It's also helpful for snowbirds who are out of town, as well as people who are ill or too busy working to file by Tax Day. Dealing with a major life event — such as the birth of a child, divorce or moving — could also prompt you to file an extension.

Extensions are particularly prevalent among higher-income households, business owners and investors whose returns depend on partnership K-1s, complex investment transactions and other information that may not be available by April 15. For many taxpayers in these situations, filing an extension is less a sign of procrastination and more a strategic decision that allows additional time to gather documentation, complete transactions, digest recent IRS guidance and refine tax plans.

Examples of three common situations where an extension may provide opportunities to collect data or complete transactions that could reduce your 2025 tax liability include:

1. Business auto expenses. If you use a vehicle for your self-employed business, you can deduct either actual expenses (including depreciation expenses) related to your business use or a simplified flat mileage rate prescribed by the IRS. Although the flat rate is generally easier to use, if you take the time to examine your records, you might determine that using the actual expense method produces a bigger deduction. An extension gives you extra time to compile the detailed records needed to support the actual expense method.

2. Medical expense deductions. Under current tax law, if you itemize deductions in 2025, you can deduct unreimbursed medical expenses in excess of 7.5% of adjusted gross income (AGI). Compiling all the documentation to support a medical expense deduction can take time and effort. Remember that health care providers need time to work through invoices with your insurance company (or Medicare), and there may be a delay between when you receive services and when you receive the final bill. A tax professional can help you understand which costs are deductible.

3. In-progress like-kind exchanges. An extension can provide extra time if you need to complete a like-kind exchange that you initiated in 2025. Under Section 1031 of the tax code, you can defer the capital gains tax on the exchange of real property held for business or investment if you exchange it for qualifying "like-kind" property. To qualify for a tax-favored like-kind exchange, you must receive the replacement property by the earlier of 1) midnight of the 180th calendar day following the date you relinquished your property, or 2) the due date of your federal income tax return for the tax year in which you relinquished your property, including any extensions. If the transaction qualifies for Sec. 1031 treatment, there's generally no tax due on a timely exchange, except for any "boot" received (such as cash to make up for differences between the properties' fair market values).

For the 2025 tax year, the extension question may be even more relevant than it was in prior years. The OBBBA's broad scope — combined with limited IRS guidance on certain new provisions and delays in updating some tax forms — has prompted some taxpayers and advisors to consider whether filing an extension for the 2025 tax year may be prudent. (See "The OBBBA Provides More Reasons to Consider an Extension" below.)

How Do You File for an Extension?

The process of filing for an automatic six-month extension is simple: Ask your tax advisor to file Form 4868 by April 15, 2026. Doing so gives you until October 15, 2026, to file your 2025 return — and avoid late filing penalties.

But there's a catch: An extension to file isn't an extension to pay your tax bill. By Tax Day, you must make a good-faith estimate of your tax liability. To avoid underpayment penalties, by April 15, you generally must have paid at least:

• 90% of the current year's tax liability, or
• 100% of the prior year's liability.

The latter threshold increases to 110% of the prior year's (2024 in this case) liability if your AGI for 2025 was over $150,000 ($75,000 if your filing status for 2025 is married filing separately).

What Are the Potential Downsides to Extending Your Return?

Before you file for an extension, be aware of the potential drawbacks. First and foremost, you must pay your estimated tax liability for 2025 by April 15, 2026. If you underpay, you may owe an underpayment penalty plus interest. In addition, if you're due a refund for 2025, filing an extension will delay it. In effect, you're granting Uncle Sam interest-free use of your refund money.

Plus, filing an extension just postpones the inevitable. Rather than allow this chore to hang over your head all summer, it might be easier to check it off your to-do list this spring — and then move forward with tax planning for the 2026 tax year.

Important: Despite rumors that an extended tax return increases your exposure to an IRS audit, there's no evidence to support that theory. In fact, an extension could reduce the risk of an audit if you're using the extra time to fix errors, assemble your records or clear up inconsistencies.

Should You Call a Timeout?

The clock is running out on filing your 2025 tax return. An extension pauses the filing deadline and gives you extra time to plan out your final tax strategy. Given the recent tax law changes affecting the 2025 tax year, additional time may also help ensure that new provisions are properly interpreted and reported on your return. Contact your tax advisor to coach you through this decision and evaluate what's right for your situation.