Donna Genie, an accountant, walks through why filing a tax extension makes sense. You still owe money by April, but an extension buys time to gather documents, make retirement contributions by October, and avoid amending your return if tax rules shift. File early, wait for clarity, then submit by the extended deadline.
Hey, we're down to the wire. Have you filed your taxes yet? Many people are throwing around the fun extension to see if that's the right move for them. Let's clarify some things. There are a lot of myths and problems around extensions that people just don't understand. In my many years of practice, many people have told me, oh, I don't want to file an extension. And when I push back and say, tell me why. Oh, because I always file by the April deadline. All right, but again, why? And usually there's no good answer. The real answer is they're afraid because they don't understand it. So let's clarify some things, make this easier, and extension is actually a wonderful tool that I encourage everyone to use and I'll explain why. Filing the extension first off, gives you more time to gather the information. There are actually two deadlines that happen on that April day, whether it's April 15th or shortly thereafter. One, you must make a payment if you owe the money with the tax return. If you owe the IRS money or the states it's due, then there is no extension of time to pay. What there is an extension of is time to file, time to gather all of the information, time to make sure it's in the rightful places before you submit that tax return to the irs. So if you're saying I want to file an extension because I don't have that kind of money and I owe a lot of money, that's not a valid solution. An extension will not save you anything and will not give you any break on the day the money is due. It's still due mid April. So why would I want an extension even if I'm getting a refund? Maybe you want an extension. Let's talk about a couple of advantages of an extension. The first advantage is it gives you more time to gather information. Maybe you haven't had the chance to go through and get all your charitable contributions lined up and you're at the last minute down to the wire and you can't seem to find some things or you're missing a receipt or two. Give yourself a break. You've got a little more time. Gather it. Do an estimate and figure out how much you owe. If you owe anything, pay that in and gather all of the information to file an accurate return. Next, there are several things that allow you when you extend to give you an extension of the time to do certain tax maneuvers. So for example, if you're self employed and you want to make a retirement contribution but you're not sure or if you don't have the money just yet, you can actually extend your tax return and make that contribution by the extended due date. The extended due date for individuals is October 15th or thereabouts. So October 15th, you could make a retirement contribution and lower your tax liability from the prior year in 2022. Good deal. Gives you more time leverage that time in this relationship with the irs. The third reason that you may want to file an extension is to attempt to reduce your auto risk. Now, I know a lot of people say, oh, there's no truth to that. If you ask the irs, if I file later, will I have a lower audit risk, they will tell you no. But I've seen scientific studies and there is something to this. The IRS has a certain number of returns that they want to review each year and based on criteria. And the later you fall, the more their auditors are already busy and have already got cases in place, they may not get around to it. So even if it's not 100% true, if it gives us a shot, it's worth that shot. It's a free stab, right? So take that opportunity to extend your returns. File closer to the deadline, don't forget about it, but file closer to the deadline to attempt to reduce your audit risk. And one other really important new thing that has come about in the last two years. Interpretations of laws are changing retroactively now. So just last week the IRS came out with an update and said if you filed your return early on and you received a state rebate check last year, several states in the US Issued excess funds that they had their coffers back to their taxpayers as a form of a rebate. They said now, oh, we think that ought to be taxable. Prior to this announcement, they were not taxable. So you're not off the hook. If you filed early and you left that off, technically you owe the money. And if you're ever audited, the IRS would charge you back for that. So they want you to amend your return to add that to it. Now, filing one tax return is hard enough, let alone filing multiple returns. With amendments based on changes and new interpretations, there are may even be something in your favor that comes out. So for that other reason, I also say file the extension, put it in the marinade, let it hang out. So finish up your returns well in advance, give yourself a break, stick it in the marinade over the summer, set yourself a little reminder or ticker to come back to that and file it later on, review it again with a fresh set of eyes. Make sure you didn't forget anything. File them. So for all of our clients, that is our strategy. All returns are done well in advance. We put them in the marinade, let them hang out for a while. If anything comes up, if anything gets remembered, you wake up in the middle of the night and say, oh my gosh, I forgot to record. I forgot to deduct this deduction. No problem. We can add that in for you. So use a freebie that the IRS gives you. You got a great benefit there. Use it. File an extension today. Please follow us on Facebook and Instagram. Please make sure to check out our blog and our website linked below. Subscribe to our YouTube channel and hit the bell to be notified when we post. You can email me@donnaampgroundaccounting.com.
