Pay Less Taxes By Extending Your Tax Return

Foreign. Welcome, everybody, to this week's episode of the Main street business podcast, talking tax and legal strategies for the investor, the small business owner, the real estate investor, the crypto investor. Just tax and legal. Just good stuff. American dream.

Yeah, baby. Yeah. Yeah. We are lawyers, both of us, tax lawyers. Mark's also got the extra nerdy distinction of being a cpa, so we have some credentials. Plus, you know, we're in the jacket

today because I feel like I should have rode up in a Harley.

I do kind of like that. Maybe an Indian.

Yeah.

You like those, Steve McQueen. Ooh, yeah, there you go.

There we go.

Who can compete with Steve McQueen? I mean.

Yeah. Well, you know who gave me this jacket for my birthday?

Oh, is that the.

That's Matt Sorensen.

That does look good.

Yeah. Thank you so much. All right.

Steve McQueen has found his match.

Okay. Mark J. Kohler jackets.

Well, today's episode, I mean, we just want to help you, and we want the IRS to get less of your money. That's what we're all about.

Yep. And many of you, I know, CPAs out there are a little skeptical of the title because you're like, hold it. Pay less taxes by extending. That's not possible. Well, maybe it's a little play on words, but we do think there are some practical reasons why extending can literally have a direct impact on your tax savings, and we're going to give you those reasons why. I think this is a very powerful topic. So, yeah, very important.

And both Mark and I extend every year, and there's reasons why we're going to talk about that. And so don't feel like you're, like, a bad boy. You know, we're kind of bad boys. But don't feel like you're like, the IRS is going to hate you, or they're going to be like, oh, no, no, no, you had to ask for an extension. You know, like you had to turn in your assignment late in school or something. It's okay. The IRS is actually cool with it as long as you let them know, and we'll talk about that. So don't feel like it's a negative just to have an extension done.

Fact. Let's. Let's stay with that theme for just a moment before we get into some dollars and cents savings. And that's the first one, is it actually can save you a lot of stress and heartache and understanding that you actually reduce your chances of an audit by extending all of the CCH Pro in the Reuters. And, oh, gosh, there's a couple Others I escapes my mind at the moment. This does annual research on tax returns and I will be in a portfolios. A lot of you accounts know these and lawyers, they'll, the statistics show that actually the later you file your return, the less chance it's going to get pulled for an audit because the irs, it's first come, first serve. So you know, I'm going to, I'll just wait around and my last, my return is going to just fly in at the last minute when the IRS is sick of, you know, picking returns to audit for last year.

So yeah, it's okay. It's kind of like getting a seat at the table. You want to be early and on time. You don't want to seat at this table. You want to be late. You wanted to be like, we're not serving anymore. Go away.

Pull up a chair. Pull up a chair. Yeah, so. And I know that sounds odd, but it's really the truth. The IRS has a budget. They have an allocation for the types of returns they want to audit for the year. And as soon as they start flying in, they start signing for 2021 and the computer system does their thing. So you really do, just by statistics, reduce your chances of an audit. Number two big fallacy is filing an extension does not allow you to pay your taxes later. If you owe, you owe. Filing an extension doesn't reduce how much you owe. We're going to talk about filing an extension to go have time to go get other strategies taken care of so you're not in a rush. And that's of course going to be the theme here in a moment. But the point I'm trying to make is don't think that filing an extension means I don't have to pay. If you don't pay, it's okay. The penalties and interest are really quite small. The real damage starts in October. But my article last week, you can go to markjkohler.com and you Google this, type Kohler an extension. You'll see it come right up. How much should I send in with my April 18th extension? And we're not going to go over that today, but I've got five different guidelines, yes, five different guidelines of how you can calculate if or how much you want to send in with your extension. But that's a different topic. Don't worry about it. Send in some money if you want.

Yeah, and that is a amazing article, if I do say so myself. Very well done, by the way.

And remember now, this week, I'll tell

you that that's it's, let me just say, everyone listening, it's good, it's comprehensive. It's not just like some fluff. I mean there's some good detail in there. If you're really doing this, think through it. That's how you do it. But the extension, I just want to say, because you haven't said it yet, it's a six month extension. So April 18th, you're going to get until October. I don't know if it's 18th or whatever, but you're going to get six months into October for your extension. So that's how much time you're buying to actually file the return. But you still want to send in a payment. Now that's kind of the general rule of thumb. Send in a payment of what you think you owe. Mark's article can go into ways to determine that. But you're gonna have six months here. And our goal in this six months is to find strategies to reduce your taxable income. That's the name of the game here. We want to reduce your taxable income so you end up having to pay less tax than you otherwise would love it.

And if you. I just went to my handy dandy calendar, I hope picked it up. We sold several hundred over the weekend and they're almost sold out. 30 bucks on my website. It's got all the tax deadlines for the years, tax tables, maps of the country with different strategies, monthly messages that are inspirational to help you with your business. But I just grabbed it. It is October 17th, Matt. So you have from April 18th to file on October 17th because the 15th falls on a Saturday in October. Now I'd like, I'm just going to give one quick example on payment. Matt, it was an interesting call. I had the client of mine, I don't want to say what type of doctor or what state. I want to try to be discreet. I want to be discreet as possible. Anyway, this doctor is opening up another wing of his practice, another location, some different services, and he needs some money for expansion. And his question was, how much should I send in with my extension? Because I know I owe for 2021 still. But I also need money for my expansion. Should I just bite the bullet and pay off my taxes or should I not send in anything? And that was a conversation on a consultation yesterday. And I came to this conclusion with him. Find a balance. And I said, don't figure out how much you need to send in. Figure out how much you need for your expansion. Like what do you need over the next four months? To get this office open because that's really going to make you more money in the long run and a bigger rate of return than maybe a half a percent in penalties or a 6% annual interest on penalties with the IRA. It's cheaper than a credit card, folks. So I told them, figure out how much you need for your expansion, carve that away, and then everything else you can send to the irs. And is it what it is then? If you owe more over the next six months. Let's get that figured out.

So now that that strategy, if not tamed, can be dangerous. Yes, that way of thinking. Because we've had lots of clients over the years that say, I'd rather grow my business. And I'm not saying anything to the irs. And then they got three years behind, and now every penny they make, they're paying this year's taxes. The last three years. Taxes. I mean, the IRS has taken a third of to half of what you make if you're successful in your state. So, you know, if you haven't done it for two or three years, you're not going to be making anything. So be careful that you're being measured in that. Like, how you say, like, take some calculations, think of what you need versus still send some. Something in. So just be careful. Don't. That could be dangerous. If you drink too much, you can overdose on that type of thinking, and it could be painful.

And think about this, too. He's like, well, what should I be making for deposits right now for 2022? I still owe for 21. I'm trying to expand. And I'm like, okay, you're pushing the envelope in three different areas. It's a little dangerous. But he's already made the commitment for the expansion. Leases have been signed, so the disaster could be. But I'm like, by October 15th, you better have 2021 taken care of.

This is the life of an entrepreneur, baby. I don't care if you're a doctor, a dentist, whatever you're doing, landscaper, cutting lawns or cutting hair. I don't care. Like, this is the life of an entrepreneur, man. That's kind of how it goes.

So be careful, okay? Okay, Matt, you give us the first way that you think filing an extension will help you pay less in taxes.

Okay? Now, when this goes up, you might have five or six days just to do a couple things already without an extension. So I just want to give a couple last items that are due April 18th. All right? So we're, you know, so you might have five or six days here left to pull this one up. The you still have time for IRAs, guys. Regular, traditional IRAs, Roth IRAs. And if you're high income, even doing a backdoor Roth IRA, you can still make a 2021 contribution. Now, if it's a traditional IRA, I'm going to get a deduction. Cool. That can help me save taxes. I can throw six in. You got a spouse throwing six for a spouse. What about your kids? Hopefully you paid them out of your business. You wouldn't need to do that last year, but you could help get them some money in a retirement account. So now that deadline, though, cannot be extended on just regular IRAs. We're talking traditional IRAs, Roth IRAs. Now, if you're high income, remember the backdoor Roth IRA is always out there. We got prior podcasts on that. But the deadline is April 18th to make a 2021 contribution. Worry about converting it later. Just get the money in by April 18th. And just so you know, the rule of thumb, if you're sending a check for the contribution, and this is what happens at Directed Iraq, that week of April 15, the week after, we have to save all the envelopes of contributions that came in. As long as your check was postmarked that the envelope was postmarked before the 18th, we can honor it as a 2021 contribution. Okay, so that's traditional IRAs, Roth IRAs, including of course, our favorite, the backdoor Roth IRA for those high income earners. Now remember, the backdoor Roth IRA is not going to save you taxes, but we're pushing more income and more savings that we can invest tax free in the future. So in a way, there is tax savings.

I want to echo Matt's and just say this too. Don't forget the health savings account. I want to contribute to that before April 18th for last year.

And that gives you a tax deduction.

Yeah. Now you can't extend and do the HSA still, but again, like Matt said, let's just quickly mention the traditional ira, the Roth ira, the backdoor ira, and I'll say also the Coverdell, which is the college savings account type ira, which you could utilize a grandparent to help fund as a contributor. Got prior podcasts on the Coverdell. Please go listen to that. If you're high income, you've got to kind of use another backdoor type strategy. But those are all little things that you have to do before you extend. Yep. Okay, now here's. Okay, can I give one of dollar savings with an extension? Okay, here's One, I'll just. And I'm going to jump around a little bit.

Fire away.

I'm going to reach out to our long term, our longtime followers that are real estate investors. In fact, we want all of our clients to consistently be looking at rental real estate as a huge part of their investment strategy. I don't care if you started with crypto, you're ending with crypto or somewhere in between. If you're again a landscaper, dentist, doctor, realtor, broker, attorney, everybody should be looking at some form of rental real estate and their portfolio every year. Airbnb storage units, commercial and renting from yourself. We did a podcast two months ago on the self rental. Okay, so enough said there. If some of you are skeptical of rental real estate, get over it. Wealthy people buy real estate, deal with it. Okay, so here's real estate.

It's not going anywhere.

No, it's not. No, it's not. Warren Buffett is still buying real estate. So, you know, he's, he may be skeptical of digital assets, but. All right, so here's why I would want my real estate investors to extend and save money by extending. And it's simply this, I'm going to say it depreciation and you're like, well, hold up, Mark, why do I have to extend to get a better write off with depreciation? It's because depreciation can be squirrely if you don't know what you're doing. When did you buy your rental? When did, did you convert your primary residence to a rental? Did you add a duplex aspect to your rental? Did you build this little unit on the back of your home? And what are they in California, Matt? They're called the what ADUs.

Accessory dwelling units.

Yeah, yeah, Accessory D dwelling units. Did you put an RV into rental service? Did you implement an auto into your real estate portfolio? Are you going to do a cost seg analysis which you can still do retroactively? Are you a real estate professional? See if you have a question on any of those, file a freaking extension. Don't listen to your accountant or your brother in law or your sister in law that, oh my gosh, you better file. You better file. You're going to get audited. Bull crap. Take the time to bet this now. I'll be, I'll be doing a real estate specific tax and legal real estate workshop later this year. We have so many podcasts on this. Take the time to get a second opinion. We just talked about the self rental strategy in the last three months where a client didn't even write off their own rent to their own business for over five years. They left so much money on the table because the accountant didn't know what they were doing. But they. So educate yourself on the real estate strategy by filing an extension. I guarantee you'll find some savings. That's number one.

Yeah, I love that. And taking the time because if you're self employed, you're a business owner, I get it takes time to get your books in order. Maybe you're a partner in something. You get a K1. You just barely got the K1 like you know, two or three weeks ago, you know, because they filed on March 15th and maybe they've even filed an extension. So you got to extend anyways. It's okay. Take the time. The most organized clients that get their crap together that their bookkeeping dialed in that take the time to ask the questions are the ones that save the most. Even me in the years I am more engaged, more on top of my own books even asking me even. I mean, I feel like I know a lot. Asking more questions, I save more. You're just more intentional about it and you end up saving more. So for many people, I actually think you should get in the habit of just extending. Buys you more time, buys the professionals you use more time. Now don't do this though. Don't wait till October because then you're gonna be running in, your accountant's gonna hate you. Start getting that stuff together now.

All right, to use a little football analogy, extending is doing a punt. October 15th. That's fourth quarter, two minute warning. There's no punting after the fourth quarter. So extending is not a big deal. You can take the time, just punt. It's okay, you can punt. You got another shot at the end zone later. But come October. Yeah, you're up against the buzzer. All right.

Okay, let me hit a couple strategies. Should I hit a couple.

Yes, sir. Okay.

After we've extended Now. Okay. And I'm gonna, of course, you know, delve back into the retirement accounts. It's an excellent well to go.

You know, because this is interesting, by extending, you actually can extend a couple retirement strategies.

Yeah. And for you business owners, you self employed people out there, this is where you get a lot more perks that everyone else doesn't get. Everyone else is playing in their regular employer, 401K. Nothing they can do. They're playing in the regular IRAs. April 18, the deadline. Self employed people, you're doing a SEP IRA and you've extended your business return. Let's say you're an S corp, you extended off the March 15th or you're a sole prop, you've extended off April 18th and October SEP IRAs, you can still throw 61,000 around 60 grand in for. I think, actually, I think 2028 is 58. Sorry, 2021 is 58,000. 2021 is 61,000. But let's say 60,000 ish, you could be throwing into a SEP IRA depending on your income. Now that's a huge tax deduction, right? SEP IRA dollars are traditional, so you're gonna get a big tax deduction. That's one. Now we of course love the solo K over the SEP IRA which also you can be throwing in about 60,000 a year. Did your spouse work in the business? He or she could be throwing in another 60 grand. You could be having over 100,000 in tax deduction. Now we're assuming you have the income here where you really need to chase these tax deductions in your business because it depends on your income. We have prior episodes on that, but those abilities to contribute and you can only do the employer contribution on the solo K at this point. And so you might have some limitations there. But, but the SEP could be something you could fully do actually the SEP IRA. So just consider the SEP IRA and Solo 401k if you're self employed.

Yeah, love it. And I'll add another clarification for everybody because this can get confusing. The traditional IRA, the Roth IRA and the simple IRA, those times are gone by April 18, so those are over. So you've got a little window there possibly to do that. But as a solopreneur with maybe some part time employees by extending, you still have time to consider the sep. Say you know what, I might throw that on the table or I might, oh, I could still open a solo 401k and put something away. Yeah, well I thought I had to do that last year. Nope, law changed. So but if you don't extend, you can't do that. So these are just two really unique strategies for the solopreneur with part time employees. Maybe if you have had an employee for one or two years that's full time, you can get away with a SEP just for this year and then we'll talk more about other ideas for the coming year. But I like that where that's really a dollar and cents thing. So first you've got real estate. I'm going to take the time to make sure my depreciation, my real estate that I put into service I'm getting all the write offs I can on that real estate. And can I or should I not do more depreciation or cost SEG or bonus or 179? So many little considerations. You don't want to be up against the wall on April 18th deciding, just kick, kick the ball, punt. And then number two, if you still want to put money away for retirement, consider the traditional or the backdoor Roth. Then extend your small business to do. And some of you go, well, I don't have that big a business. Are you a consultant? You have a 1099? Does someone Venmo you? You might be surprised what you could do. So lots of options. All right, number three, crypto. If you. This is again, many of you already know this is the first question on the tax return. Now, did you gauge and any sort of crypto transaction last year? I will paraphrase. So here's my suggestion to any of you. If you're trying to knock out your 1040 on TurboTax, because that's how you've always done it, and you see that question, did I do crypto last year? And you're like, I'll just check.

No,

that's, that's, that's a crime. I mean, up to five years in prison for lying on your tax return that you made money in crypto. I don't care if it's in a phantom wallet in eastern Yugoslavia. It does not matter where you made that money on some blockchain in eastern Asia, you know, where no one, you don't think anyone will find it. So here's my suggestion. Just file an extension. Come to the crypto tax summit. It's six weeks away. It's going to be down in Miami. Two days worth of content. You'll love it. Or catch it on the virtual. You can go to cryptotaxsummit.com we have CPAs from around the country coming to the conference and also catching it online because they need to get caught up on these rules. So if you had any crypto transaction last year and you have any question of whether what the hell to do, extend, do it right. Yeah, save you money. That's a save money strategy.

Yeah, because. And I know what some people are thinking of, like, how's that save me money? Exactly. Well, guys, if you get this wrong, the pain you're going to have, the stress of worrying about it, of like thinking you're flying below the radar, that is a cost in and of itself, let alone the penalties the IRS is going to be throwing on you. For this or the worry if they think this is enough, that it should be criminal. They are waiting for a whole group of people to, to make an example out of this. Okay? Don't be putting your name in the lottery here to go be part of this crowd. Okay? Do it right. The crypto tax softwares are getting better. As we say at the crypto tax summit, know the game. Okay? There's ways to save taxes. Be legit about it.

Okay, next strategy. This is my last one, Matt, you might have one. Okay, is when I say pay less taxes by extending. Another twist on that. What I'm trying to tell you is I was talking to a client this weekend and I said, did you write off that trip? No. What credit card was it on? I don't know. Okay, extend, Take the time to dig that up. So many of you really, really need to take the time. It's so easy nowadays. I'm a little older. I had old school strategies where you couldn't even get access to your credit card statements without requesting them and writing and mailing them to you or blah, blah. I mean, right now you can go download all your credit card statements for last year, print them out, grab a highlighter and start going through and highlighting. Well, my business didn't pay for it. Doesn't matter, you can still write it on. So take the time to go through all your bank statements, all your credit card statements and just sit back and watch a movie one night, turn on, do a little binge watching on Yellowstone, watch three episodes and just go through and just highlight trips that had a business purpose at all. Dining while you were on those trips, even if you were by yourself. Auto mileage, driving to the airport. How many times. Anything at Best Buy, anything at Apple Store. See, there are so many expenses buried in your Costco receipts or whatever. So take the time by extending. Do a little self audit. I swear you'll dig up 10 grand in rhinos.

Yeah, I think, you know, I can just think of years, I've even done this myself of just like thinking back. Okay, what's the stuff I bought that I wasn't tracking? Oh, the camera that I bought, that I used to shoot video on. Oh, the microphone. I'm recording this damn pod. Okay. These little things you just. That slip your mind. But all that stuff adds up. And when you're rushing to get in by April 15, it's a, you know, and your accounts putting some pressure on you. They want to get you through the door too. You're going to miss that stuff. Take the Time, It'll. I mean, if you talk about your time per hour, the few hours you could spend by going through that year, like Mark said with the bank statements, credit cards. Also just taking a step back and thinking of the stuff you use in your business, just like think of what do I actually use in my business that I didn't write off? Oh, did I write off that promotional thing, that trip to visit that client, that time I went to my rental property five times because there was an issue with the toilet or. You know what I mean, that conference I went to, that I actually. Oh, that should be a write off. Why didn't I write that off? Like, think of those things. Those are the things that are really commonly missed. And when you add those up, it can be thousands. Thousands in taxing.

Yep, I think. Do you have one more? I guess I do have one more. I was just thinking of here, but do you have one you want to finish on?

No, I kind of like, you know, playing off ears because I'm out of ideas.

Okay, here's one last one that just came to me too. Pay less in taxes by extending to give yourself a chance to get a second opinion, get a review. Let your tax guy gal, whatever. Prep it yourself on Turbo. Whatever you're gonna do, prep your return and then go pay something. Don't go ask someone for free advice. Don't go to your sister in law for a spaghetti dinner and say, will you look at my return? Go pay someone legit and say, will you look at my return? Tell me what you think I'm missing. They, they don't have to sign it. They don't have to prepare it. They can just review it. And I love to do that. Oh my gosh. Because I want to prove that I can find something. And so if you get the right account that's kind of like, oh, I can dig something up. They may have not time to re. To actually prep your return. Tell them that, say I don't have. I don't need you to prep it. I'll pay you for a full hour. I just want you to go through and identify categories you think seem low. Now, most accountants have software that'll say, okay, you're a barber, you cut hair. All right? The Software looks at 10,000 barbers from around the country and compares you in the system against those other barbers. And it says, you know what, your supply expense is a little low compared to these other 9,999 barbers, hairstylists. Why is your supply is low and you're you might go, oh, well, oh, I forgot to write off this or that. And so sometimes mileage could appear low, dining could appear low. Did you pay your kids? Did you not? What did you do for this? That. So anyway, I think getting a second opinion can be huge. And you can pay for that and take the time to do it.

Yeah. And also, you know, in our law firm, we do a tax and business planning consult. That's a strategy. And you know, going over tax strategies, your trifecta and all that, a lot of times that'll open your eyes and sometimes it's going to be stuff that's like, there's nothing you can do for 2021. And I'll just be honest, sometimes that's the answer. But you know what? Now you know and you painfully know the mistakes you made and you can now you know what to do for 2022, you're going to need to take that time at some point to do it. So you might as well do it with like, here's what's really going on. Get specific about your business. That's the best way to do those. We're going to get the most out of it. And so having your live scenarios of what's going on, what's your tax strategies you're doing, what's your situation, getting the trifecta done. There might be some stuff we find for 2021. Now you got the strategy. There's definitely going to be a list of what you can do in 2022 and moving forward.

Yes, yes, I like what you said, Matt, because the time to get tax write offs for 2022 is now. Don't wait till the spring of 23 to get you in the same damn spot. Doing a review now and doing it now will put you in a better position with your habits, with your attentiveness, with your mindset go, oh my gosh, I'm never going to let this happen again. Well, there you go. I know someone may say, well, that was tricky. By extending, you didn't get a tax write off. No. You didn't save taxes directly by checking the box extending. But by going through the extension process, I think you really do open your door to a lot of ways.

Guys, it's kind of like we're saying, go to the gym. You're like, I went to the gym. I didn't get in shape. Did you work out? Did you do something when you got there? It's the same thing with extending. Once you extended, what did you do? Okay, that's right.

Good Call Good.

All right.

Good call.

Well make sure everybody you're subscribed to the newsletter. I just want to point that out. Of course you can get it@mainstreet business.com kqslawyers.com markjkoler.com, matt Sorensen.com youm can sign up for the newsletter any of those places. You can see Mark's amazing article there on estimating what you should send in with as a payment with your extension right now if you're so choosing to do that option. We've beautifully laid out today I feel and of course you get updates on all the stuff we got going on the crypto Tax summit, self directed IRA summit. So much stuff we got that's teaching you strategies you can be implementing that'll save you taxes.

Yeah. And I'm going to give a specific to dates so that all of you have this. You'll probably be watching this podcast if you get pinged watch it as soon as it goes live in and around April 7th or 8th. So two weeks from now we're going to be in Orange County, California for a day and a half doing the directed IRA summit which is going to be talking about these very strategies that you can do. After you extend there'll be some networking with other self directed investors. It's going to be really we try to make it quite fun and for a tax seminar it's fun. You get continuing education credit if you're a CPA financial advisor attorney and please get registered. So if you're you can get a quick easy there's four airports within an hour of where we're speaking.

Yeah.

And you can get to a Hampton Inn, stay the night, come out and it'll be it's all a write off for your small business.

SDIRA sdira summit.com sdira summit.com and then

number two literally and that's I'll count weeks 1, 2, 3, 3, 4, 5, 6 weeks literally from the time you're getting this podcast will be in Miami. And again so easy to fly in, have a lot of fun. We're going to have networking events daily where you can collaborate with other crypto metaverse staking mining strategies and meet others, have some good food and it's there's a VIP experience. We only have 12 seats for the VIP experience on a yacht with Mr. Matt Sorenson and myself and dinner on us for an evening and one on one and premium seating. Premium VIP seating and some breakfasts. Breakfast and welcome dinners. So anyway, please check out Miami it should be a lot of fun. And there's a virtual option to both of those. So if you have to be home managing the fort at home with kids or business, you can get the virtual and the recording will come with it. So get to cryptotaxsummit.com or sdirasummit.com get registered for both. Again, both are tax write offs in your small business. You'll love it. Okay, Matt takes us out.

All right, thanks everyone. If you love the show, please make sure you're subscribed to it. By the way, whether it's the Mark's YouTube or you're subscribed on, whatever podcast channel you listen to this and please share it with others. Give us some great reviews, some thumbs up, some some likes, some five stars. Whatever kudos you can do, we always appreciate it and we will see you next week with another amazing episode of the Main Street Business Podcast. Thanks for being here.