Time to Take Advantage of All Available Tax Benefits
As tax season nears, you might be considering the extension of your return. Most people don’t realize that extensions are free, easy to complete, and once finished, automatically filed. They can also be extremely beneficial. Here are some of the advantages of filing a tax extension…
- You’ll relieve the annual stress of trying to gather all your tax information by the deadline.
- You’ll give yourself more time to receive tax documents that may be coming late.
- You can focus more time on thoroughly reviewing your return and discussing with your accountant whether you’re taking advantage of all available tax benefits.
- You may have more time to take advantage of retroactive changes to the tax law and may be able to avoid costly, time-consuming amendments.
- You’ll avoid failure-to-file penalties, which can add 25% to the tax due.
*NOTE: If you owe the federal or state, all taxes are due by 4/15 even if you’ve completed the extension documentation. Many people are under the impression that if they owe on their tax return, they can delay paying the taxes by filing for an extension. This is not the case, and if you fail to pay any amount owed by April 15th, even if you extend your return, you may be subjecting yourself to expensive penalties and interest imposed by the IRS.
How do I know how much to pay on April 15th?
If you expect a refund on your taxes, you can file anytime and will receive the refund after your filing date. However, if you expect to owe, we recommend that you pay 110% of what you paid the prior year. If you overestimate the amount you owe, you will have this amount refunded back to you, and if you underestimate it, paying a lesser amount will still reduce the overall penalties and interest owed than if you didn’t pay at all. This method isn’t an exact science, as you may have had significant life changes in any given tax year, such as buying or selling a house, starting a business, etc. that might change your amount owed.
Why would you want to file an extension if you have to worry about determining what you owe or potentially incurring underpayment penalties? As mentioned, filing an extension is particularly beneficial for those who need more time to pull all their tax information together or anticipate a beneficial tax legislation change coming soon. Plus, if you know you need to extend and are a current client, we can help provide the amount owed! Simply contact our team and we will provide this number. For new clients, please reach out to us before January of the new tax season so we can get you set up in our system and provide the estimated amount owed in advance.
What it means to extend your tax return?
If you’ve determined that filing a tax extension is a good choice for you but are unsure how to do so, no worries! We provide further information in our blog and important factors you should consider when filing an extension. Click here to learn more about how to extend your tax return.
Want to more details about filing an extension from the IRS website? Click here to learn more.
Have questions? Click here to contact us with any questions you have. Or Click here to learn more about our tax planning and preparations services.
Blog by Christie Crockett, MBA, AFSP – Tax Accountant
Learn more about Christie and the rest of the Storen Financial team here.