Filing a Tax Extension

0:00 Ralph: It's tax season. Have you filed your taxes yet? Are you scrambling to get an extension? Folks, the federal tax deadline is this Monday, the 15th. If you haven't filed this episode is going to be a last minute saver for you. So don't forget to tune in today.

0:45 Welcome to our tax talk Thursday show. I'm so glad you chose to join us. I just want to thank you for listening and supporting the program. Today, we're talking about filing for a tax extension. It's that time of year again, it's tax season. And trust me, I know it. For many of us gathering all of our tax documents and filing our returns is a tedious process. And many of us dread it every year. And sometimes despite our best efforts, life gets in the way and April 15 sneaks up on us faster. Then we had hoped friends, if you find yourself up against a deadline without your taxes filed. Requesting an extension is a viable option to consider. Filing for an extension gives you more time to get your tax return in order.

1:27 But it doesn't mean you can wait to pay any taxes. You may. Oh, that's right. Even if you file an extension, you still need to pay by April 15th. So what exactly does filing for an extension entail? Are there pros and cons you should be aware of. And what steps do you need to take? If an extension makes sense for your situation. Today, friends over the course of this episode, we'll explore what every tax payer should know about filing for a tax extension. Let's start with talking about the farm. The rain has finally stopped. Yesterday was an absolute deluge of rain. So now let's hope we can get some drying going, but as they say, April showers bring may flowers.

2:09 Don't forget to subscribe to the show and join our email list. You do that at askralphpodcast.com . You don't want to miss tomorrow's show when we discuss credit card charge off and forgiveness and the impact that this has not only on your credit, but maybe on your taxes and your financial situation. I also want to remind everyone as you can see, we're now releasing a video version of our daily podcast. On our YouTube and rumble channels, I put the links in the show notes. You can simply search for the ask Ralph podcast on either platform and check out our show on video. If he can't get enough, of me, you get to see me now. I don't know if that's a good thing or a bad thing. Let's start with a Bible verse for today.

2:52 And that comes from the book of Romans chapter 13, verses six and seven. This is in the ESV Bible. For because of this, you also pay taxes. For the authorities are ministers of God attending to this very thing. Pay to all, what is owed to them? Taxes to whom taxes are owed revenue to whom revenue is owed. Respect to whom respect is owed. And honor to whom honor is owed. And that's something we can all do today. So let's start with a basic question. What exactly is a tax extension? Let's clarify what a tax extension is filing for an extension does not mean you can skip doing your taxes entirely. I wished that were the case, but guess what?

3:33 An extension simply gives you more time to prepare and file your tax return. As you may know, the standard tax filing deadline is Monday, April 15th, but with an extension you get an additional six months. That's right. You can go to October 15th. to submit your completed return. Now it's important to note. That an extension provides more time to file, but not more time to pay any taxes owed. A lot of people don't understand that you still owe the taxes on April 15th. You still got to estimate what you expect to pay and send that amount in by April 15 to avoid penalties and interest charges. The extension is just for finalizing the paperwork and calculations on your tax return.

4:15 Now it does prevent you from getting a penalty for late filing. It doesn't prevent you from getting a penalty for late payment. Now that you know what an extension entails. You might ask a question, like I just said why would you want to file one? So here are some common reasons. This isn't an exhaustive list, but these are some of the common ones. Maybe you're waiting for additional documents, like W2's 1099s or forms from investments to complete your return. Many of my clients have investments in. Sometimes it was investment 1099s. Take some time to get out. Or perhaps you had a error on your W2 form and your employer needs to issue a corrected one. Could also be from a major life event, such as a marriage, a divorce, a new child.

4:56 Maybe you've had unfortunately, a death in the family. Maybe you're experiencing health issues or a job change. All of these things can delay your tax prep. So you want to make sure you file for that extension. Another reason to file. You could claim deductions or credits, but need extra time to calculate them accurately. You may need some time to put together those last minute receipts. It could be also, you recently sold real estate or a business. And the related tax implications are complex and you really need to sit down with maybe a professional, like myself and work those things out. It could also be that you earn income from foreign accounts or investments that require additional reporting. Sometimes you get to the point of doing your tax return. You realize that, wait a minute, I don't know how to handle this.

5:38 You may suspect you owe taxes and you want to avoid rushing into a return that isn't accurate. A lot of my clients will say to me, Ralph, I went on to TurboTax or one of the online sites and I did my return myself, but I can't possibly owe this much. That's when you file an extension. Or you could simply have gotten busy or ran out of time, but one to file an accurate, complete return. And that's the key folks you want to make sure you're filing an accurate and complete return. If you're unable to do that, then I highly recommend you file an extension. So as you can see, filing for an extension makes sense. If your circumstances, warrant taking a bit more time to prepare and submit your most accurate information. For some taxpayers gathering all there documents or clarifying certain details may require using this extra six month cushion.

6:23 It is not intended to be a vehicle for procrastinators. The truth is folks. If you've got your information ready to do your return and you just need to file it, there is absolutely no reason in my view to file an extension. So if you've determined an extension fits your tax situation this year, Here's a quick four step process. I like to give you some easy action items. Number one, and this one is key. Estimate your tax liability. You've got to make an honest estimate of what you expect to owe for the year, based on your current knowledge, this is what we call your extension payment. As I talked about, even though. Your tax return is being extended. The time to pay is not extended.

7:05 Your payment is due on April 15th, regardless of whether you file an extension or not. So let's move on to step number two. And that you want to pay your extension amount by April 15th. You send the amount from step one, you determined by the standard tax deadline to avoid penalties. You can do this online via mail or with your tax software. Step number three is you want to choose your extension form. You can file for an extension using IRS form 4868, or by selecting the extension option in your tax software. Both methods work equally well. And finally, number four, you want to file that extension by April 15th. Form 4868 must be mailed on or before the deadline.

7:46 For e-filed extensions confirm that the IRS has accepted your request. That's crucial. If you're mailing the extension requests, make sure you send it certified mail with return receipt. A lot of clients don't do this, but you need to be able to prove that you filed that extension timely. Unfortunately, this is a common error that I see when people do their own extensions. Now, internally we file all of our extensions electronically. That way we have a kickback from the IRS that tells us that it's been filed. So if you follow these steps, you'll have successfully filed for an extension. And can then take the remaining time to complete your return accurately, but just be sure to pay your estimated taxes on time and submit your finished returns by October 15th, which is the extended.

8:28 Extension deadline. Well, let's talk about some pros of filing for an extension. So we've covered the logistics of how to do them. Let's talk about some of the key benefits. One of the key benefits is you avoid rushed mistakes. Filing when you aren't fully prepared, raises the odds of errors. Nobody wants these, and that could trigger an audit. Again, something you don't want taking the extra time allows you to be thorough and avoid obvious mistakes. another thing it does. It could allow you to include more deductions. With the extension window, you can organize meticulous records to properly deduct everything eligible. That might be things such as donations, medical expenses, home offices, and more. Another thing it does.

9:09 It could prevent underpayment penalties. Without an extension under paying your tax leads to penalties. The extra time allows you to pull together all details, accurately and accurately calculate what you owe. It could also defer making a big payment if you owe a substantial amount, but can't pay by April 15th. And extension postpones when full payment is due. Now, listen, you need to understand interest and penalty is still going to accrue. If you file an extension, you're not going to get the failure to file penalty, but you will get the failure to pay penalty and that, and the interest starts on April 15th. Another thing. a pro is to manage tax obligations amid life events.

9:50 As I mentioned before, maybe unfortunately, you've gone through a major life event and that's made tax preparation difficult. And extension let you handle taxes appropriately. amidst those significant changes. It also prevents you from having to amend returns later. If you rush through your taxes, there's an increase in the likelihood you need to amend it later when you uncover missing information. and extension leads to a more complete return the first time. And this is a question I get asked sometime in my practice. Clients will sometimes ask me, Ralph, listen, I know my tax return is not complete, but should I just go ahead and file it? So I meet the deadline. The answer is no. If you do that, you are intentionally filing a false return.

10:30 I would highly recommend you not do that. The overall benefit of an extension is getting your taxes right. By using the extra time wisely, you can file accurately. You can avoid errors. You can include more deductions, properly calculate payments and prevent problems down the road. But of course with pros, there are always cons. So as useful as extensions can be, there are some potential downsides to note. And this is the big one. You still need to estimate the taxes that are owed you must pay in good faith, what you expect. to owe. By April 15th. Truth is folks. This takes effort and you'll pay interest and penalties. If you underpay another big one, a lot of people don't think about is there's a risk of forgetting to file some use extensions, but then miss the October deadline altogether, that triggers huge penalties for late filing.

11:20 So you've got to calendar and submit your return on time. Another thing that's a con is interest charges will accrue. The truth is folks. If you owe taxes, interest starts accumulating on that amount. Beginning, April 15th. Even if you file an extension. Another con is amended returns still may be needed, although less likely you may discover new information later that requires amending your return. Unfortunately an extension doesn't eliminate that possibility. And here's a big one. And I have some of these folks in my practice. This can become habit, forming some make extensions and annual habit instead of prioritizing timely your tax prep.

12:01 This temptation should be balanced with good planning. And unfortunately we have our habitual offenders. I call them and there's nothing wrong with it. They just need to understand that at some point you really should be doing your taxes on time. And here's the thing I hear sometimes in my practice, some people say, well, you file an extension. You're less likely to get audited. That's just not true. The IRS may still review your return. An extension gives you more response time if audited, but doesn't reduce your audit risk returns filed after April 15th, remain subject to closer scrutiny in some cases. So while extensions facilitate accurate filing, they aren't a panacea. You must still estimate your tax liability wisely file on time and be thorough.

12:42 Otherwise an extension merely delays the inevitable. And problems associated with doing your taxes, hastily or incorrectly will still creep up on you. Before we wrap up today, I want to remind all of our listeners to visit our podcast page. Do that at askralphpodcast.com . There you can leave, review, share your thoughts, or even send us a message with your questions for future episodes. Make sure you join our email list while you're there so that we can let you know about what's going on on the program. And if you're one of those tax procrastinators, you can also schedule a consultation, me to discuss your specific circumstances or ask me to help you file an extension. Here's my ask for today. I want you to share this episode, if you know someone who has yet to file their taxes, or maybe you're one of those people in need to file an extension.

13:25 Listen to this episode and share with others who will benefit from it. So let's talk about the key takeaways from today. If this episode has you considering filing for an extension this tax season. Here's some key tips to keep in mind. Number one pay your best estimate of taxes owed by April 15th to avoid penalties. As we discussed you. Can't. Extend the time to pay. This is a great time to gather any missing forms or documents during the extension period. Don't just look at that October 15 deadline and say, well, I'll just wait until October the 11th. And then to work on this, use that extra time to identify additional deductions. You can claim, use this time to refine your tax return, or maybe you can save yourself some money. It's a great time to check your math thoroughly extensions.

14:08 Allow no margin for calculation errors. And here's the key folks, calendar, extension due date, and submit the final return on time. And understand an extension provides more filing time, not more time to pay. Interest charges continue to occur. I wish I could tell you that it wasn't a case, but as of April 15th, if you owe money, your interest and penalties are still going to accrue. And as we said, this may not prevent you from having to file an amended return in the future. And finally do not make this a habit. This extension shouldn't become an excuse for delayed. tax filing every year. So in summary tax extensions, provide valuable breathing room for those who need more time to file accurately, but they aren't a free pass to delay paying taxes owed.

14:55 Or submitting your return. These can be used to leverage an extension responsibly. Understand the implications and use the extra time productively to get your tax house in order. If you need to reach out to a tax professional, if you need assistance. On that note. I hope this overview gives you a better handle on tax extensions. Remember Monday the 15th. When they make sense. What to watch out for and how to navigate the process. As I said, please visit our website at askralphpodcast.com for more tax tips and financial resources. There are over 300 episodes out there. I appreciate you tuning in today. As I always say, stay financially savvy and may God bless you and get those tax returns done.

15:37 If you haven't done it already.