Tax Extensions – Why It’s A Good Thing!

Traditionally, Federal (and many state) tax returns are due on April 15th. If the 15th is on a weekend or holiday, then the first business day thereafter. The IRS will grant an automatic extension to file your taxes every year, as long as you complete Form 4868. Tax extensions are a good thing! 

Why Does Our Firm Believe in Extending 100% of Client Returns?

While your extended tax return isn’t due to the IRS until October 15th, your tax liability is expected to be paid evenly throughout the year. That means you need to plan, and be reasonably certain of, your tax liability well before the April 15th due date to avoid penalties and interest. This requires tax planning. Our clients know their tax liability well before April 15th because we offer a fall tax projection each year.

Filing an Extension Could Save You Money

By waiting to file your return, we’ll know more about your expected tax liability for the previous and current year. Certain business deductions like asset depreciation and retirement plan contributions for small businesses can be made all the way up to the October 15th filing deadline. With more information, we can make better decisions to take advantage of lower tax brackets to save you money.

New Legislation

The past several years have ushered in several tax legislation changes, with some even retroactive to the prior year. Oftentimes the IRS, and many states, still haven’t interpreted what the rules are by April 15th. The more time we have to wait on this guidance leads to less uncertainty for our clients. In addition, it increases the likelihood of us filing your return correctly. 

Also, all these late legislative changes also take weeks for our tax software to incorporate. Waiting for all the bugs to be worked out of the system decreases the chances of you receiving a notice or audit correspondence from the taxing authorities.

Trying to File All Our Client Returns by April 15th is Bad Business

As banks and investment companies send out revised tax forms later and later into the year, our tax filing timeline has compressed to about 6 weeks. At an old school firm, staff would be expected to work 60-80 hours per week during this time period to meet the demand. This leads to a lot of late nights, weekends and sleep-deprived accountants. Meaning they are more likely to overlook potential tax savings for their clients (caffeine only takes us so far!). These long hours are driving accountants out of the profession. Furthermore, there are more CPAs retiring than there are entering the tax field. This old model makes it hard to run (and staff) a profitable firm. Balancing the workload by extending returns allows us to hire and retain more experienced tax professionals.

Filing an Extension Doesn’t Increase Your Audit Risk

When we analyze IRS audit statistics, we can tell that filing an extension doesn’t increase your audit risk. IRS audits are generally the result of incorrect filing positions or large deductions that don’t match the typical profile of the average tax return. By waiting to file your return, you can ensure late tax documents are incorporated into your return along with any revised investment forms which can actually decrease your audit risk. 

Doesn’t Tax Planning Cost More?

You will likely spend more money on taxes during your lifetime than any other expense. While tax planning is an additional fee, optimizing your spending on tax and accounting services will often lead to you paying less overall when tax savings are considered. We’re experts in determining what sections of the tax code can be utilized to help you save money.

How Can You Help Your Accountant Make the Most of Your Tax Situation?

Our best clients reach out to us throughout the year to proactively ask questions. They are also taking advantage of our tax planning and projection services. The best time for tax planning is between June – November when we have the time to consider your situation and give your tax planning the time and attention it deserves.