Ep. 25 | The Value of Tax Extensions
Download MP3Welcome to the Teaching Tax Flow podcast, where the goal is to empower and educate you to legally and ethically minimize taxes paid over your lifetime.
Speaker 2:Hey, everybody. Thanks again for joining us here on the Teaching Tax Flow, the podcast. Already at episode 25. Today, we're gonna talk about the value of a tax extension. So obviously, we know that quote unquote tax day is right around the corner.
Speaker 2:So listen in, take some notes, and let us know what you think. But before we do that, let's take a moment and thank our sponsor.
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Speaker 2:Welcome everybody back to Teaching Tax Flow, the podcast. I am John Trzepalski, and co hosting with me is the fabulous Chris Piquero.
Speaker 4:What's up? John, I'm on I'm your you didn't say your right hand man, and I'm on your right side this this time.
Speaker 2:I think this entire time, maybe you've been on my left once. I think so. I don't remember. I don't
Speaker 4:Kinda like when you're married, you have your certain side of the bed. Yeah. You're it's a way more certain side
Speaker 2:of the But get off my side, man. Get off my side.
Speaker 4:Well, I guess it depends on how you spoon, John.
Speaker 2:Well, it's true. That that's true. So before we goodness, our wives don't listen to us. Oh, so I I hope they know. I mean, they already know that we're crazy as it is, but the timing is perfect on this topic.
Speaker 2:Let's talk about tax extensions. So kind of a twofold on that though. First, let's let's talk about some myths with that and what they are, and let's start with what they are and how they work. And then also, you know, why you would want one. Right?
Speaker 2:Like, to some people, they might say, well, why would I file a a tax extension if I'm ready now? Does that make me lazy? So I am not a CPA, clearly. So, Chris, you've been doing this twenty years. I have a I have a story to tell with this one, so I will let you start.
Speaker 2:And tell
Speaker 4:it first, let's start. Again, what what is a tax extension? A tax extension is simply a filing that provides you with additional time to complete the preparation of your tax return. A tax extension does not give you more time to pay. On the federal side, it's a six month extension.
Speaker 4:Most states do comply with the federal tax extension guidelines, but it did does give you extra time to file. The title
Speaker 2:of this
Speaker 4:podcast is not tax extensions. The title of the podcast is the value of tax extensions, and there's a big value to those, the tax extensions. Filing extent an extension is not lazy. It is intelligent. I would say in our private CPA practice, about 65% of the tax returns are extended and the vast majority of those are intentional.
Speaker 4:Now you're you're telling me I'm getting a little feisty. Oh. You're getting a little feisty. I got a little feisty at single member LLC in the home office. Get a little swiped with those.
Speaker 2:Just everybody else very passionate about that. There's no way waving a head in the air like it's a sword. So, yeah, so it should be interesting. And this this was not the story I was gonna tell, but I hope my parents actually got a tax extension the year I was born because my birthday is right around that that quote, unquote tax day. I know we don't like saying that specifically, but I hope they did.
Speaker 2:If not, they had problems.
Speaker 4:Well, I feel I didn't know your parents at that time. And if had I been preparing their tax returns, I probably was in about second grade. That would not been a good look. Yeah. But I mean, it didn't say you've been doing this a long time.
Speaker 4:I have been. But I would say this. It unfortunately, mainstream media, in my humble opinion, pushes the April 15 deadline on people and and really forces pushes people, which I think could or could not be the federal government behind it, to file before April 15. When you will start understanding teaching tax flow, legally and ethically reducing the taxes you pay in your lifetime, you're going to realize that the your goal when your tax return is filed, and let's just talk on the federal side, is to get the best result possible, not the fastest result possible. So you if you are happy with fast food, then go for it.
Speaker 4:I mean and I'm just saying that because I like peanut butter and jelly sandwiches, so I don't I'm not I'm not bougie with food. My wife thinks I should be or maybe would appreciate a a more sophisticated palate, but the point is is you want the best result possible, not the fastest result possible.
Speaker 2:And it's interesting you say that too, which is I'm sure everybody can attest to this. So at some point in our lives, it's probably gonna happen this year again. I mean, especially now that I mean, being a marketing guy. You know, marketing communication is now more well, some of my fellow markers will kill me, but, it's very intrusive at some point. So being pushed towards that, quote, unquote, tax day now and don't miss the tax filing date, like, very, very direct.
Speaker 2:It it is it's it's misleading for one. So if somebody say somebody's interested in this. Say every year, they file by the fifteenth religiously. Every single year, as soon as they get everything in order, they're filing. Well, great.
Speaker 2:I mean, that that means you're a timely person. However, what would be the actual benefits of doing a tax extension? So you're already talking about, you know, it's not it's not a bad thing. You're not putting yourself on the on the naughty list with the IRS. You're not absolutely gonna get flagged for, you know, all these investigations and all this and all this stuff into your lives, but what are a couple of benefits?
Speaker 2:Maybe just a a couple because I'm sure there's a bunch or
Speaker 4:John, depend very passionate about this.
Speaker 2:I know. I see it again.
Speaker 4:I've identified eight core benefits.
Speaker 2:Now we've I've always put his hands in his pocket. Yeah. Keep from Hostile. Playing a better
Speaker 4:Yeah. No. There are eight key benefits. Let me say this before we start getting into the benefits. If you're gonna get the best result possible and you can file in a timely fashion and you file on February 20, then just file.
Speaker 4:But so it depends on your situation. If you're someone that has a w two and you own a home and have more mortgage interest and some property taxes. Let's say you have a couple investments and all of your tax documents are sent to you by February 1. You can file your return by February 20, and there's no additional actions that need to be taken, then just then file. That there's nothing wrong with that.
Speaker 4:I it's just tax extensions provide you with a lot of benefits. Unfortunately, they're taboo and they carry a negative connotation. But since you asked, let's talk about the benefits. So here's a lot of benefits. Remember that and and as you know, I encourage you to check out teaching tax law and a lot of the things that we teach.
Speaker 4:If you just wanna dip your toes into the water, jump in our defeating taxes Facebook group. It's free. It's private. We have our teaching tax full black belts in there to help you out to answer tax questions. But you're gonna realize that that the best result possible is what we're looking for, and a lot of the tax strategies that could benefit you can can be extended with your tax extension.
Speaker 4:So let me give you an example of the first one. If you're self employed, you if you file a tax extension, that actually gives you more additional time. It It could be a corporate tax extension, an s or a c corporate return or personal extension. It gives you additional time to contribute to a sub IRA or a defined benefit plan. So think about your cash flow versus tax flow that we teach.
Speaker 4:So that's one. It gives you a more clear understanding of your current tax situation and potential application of prior year tax overpayments to your current year estimates. Let me give you an example. I want I'm think about the pandemic year. Excuse me.
Speaker 4:And I think about people that had potentially a a lot of, taxable income in 2020 or 2019. I'm sorry. And they rushed to file in 2020. And with the expectation that their income in 2020 was gonna be higher than 2019, where, you know, wouldn't it have been neat to have I mean, we very rarely I love monopoly if you watch any of our videos, that are in my office or you see the monopolies monopoly stuff, but it's a get out of jail free card. I love the fact that I could potentially have until September or October of twenty twenty three, the year we're in right now, to make a final decision on some deductions on my 2022 return, Or if they're deductions that I can take in '22 or '23, I get to choose which year because I'm already nine 75% into '23.
Speaker 4:So that you get to pick those timing of deductions. We talk about your tax return being a verb and not a noun.
Speaker 2:And I remember I feel like I always remember you saying that a lot of the years that I've known it. It's it's part of the strategy. It's not a, oh, I don't feel like doing it now. I'm gonna do it later. It's part of the strategy.
Speaker 2:For as many years as we've traveled together and and gone to all these events and speaking engagements and meetings, etcetera, I love how you tell people that there really is no tax season per se. I mean, there's there's a busy time Mhmm. For a CPA.
Speaker 4:That four letter word about To give. Oh, golly. You know? What the what the right
Speaker 2:It it it is part of the bigger picture. It's part of that full on strategy.
Speaker 4:We yeah. We don't use those terms that you just discussed, but we in our private practice and the way teaching tech what Teaching Tax Flow believes is that we have a compliance season and we have a planning season. And the compliance season, the heavier compliance season, meaning tax returns are being finalized is February and March and the April. But tax planning, when your tax returns are verb, not, and not, it's something that should be thought of all year round, which brings me to the third benefit. Understand that tax preparers, there's so much seasonality that that that is out there with tax preparation.
Speaker 4:You want your tax I wanna the the best way I could describe this, John, is what's your favorite restaurant? I'm gonna put you on the spot for once.
Speaker 2:Yeah. What's a it's a scruffy little joint. We won't give a name.
Speaker 4:Okay. Where is it located? It's it's in Panama City Beach. It's a great Oh, I know. It's one you okay.
Speaker 4:We frequent there sometimes. We we frequent there when we're here. So let me think about this. We were there Saturday night, we were there on a Saturday night, and we've been there on a Tuesday night. Right?
Speaker 4:Do you wanna go to your favorite restaurant on a Saturday night when there's a half hour wait for a crappy table or Tuesday night when you can walk in and get your favorite server? Then sometimes you get better food. It's better quality. It's faster. It's the same price.
Speaker 4:So my point is, why don't you allow your tax preparer to give you their undivided attention on your tax return preparation? And I'm gonna promise you, you're not getting that in February and March. Mhmm. I've been doing this for twenty years. It just can't happen.
Speaker 2:And when self repairs are working twenty three and a half hour days.
Speaker 4:Exactly. Do yourself a favor and do that. Most people that live if you're listening to this in a and and you live in a a large city, I mean, I'm outside of Nashville or or you live in a tourist town, you learn very quickly that you don't go downtown and and go go to those tourist places on the weekend. You go on Sunday night, Monday night, Tuesday night. So that's that's another benefit.
Speaker 4:There's a lot of tax elections that you can make. Extending the time frame for those elections is extended with the return. A lot of our clients, which is another benefit, when we talk about cost segregation studies, the timing of deductions can be manipulated. Manipulating is kind of a bad word. It is.
Speaker 4:But it could be legally and ethically manipulated between two years, especially with bonus depreciation section one seventy nine. And sometimes you wanna see how you're doing the like, someone you might be in a 24% marginal tax bracket in one year. You've never been in that high of a bracket, and you're you have a growing business or let's say and and now you're halfway through the year and you're like, oh my gosh. I'm gonna be in the 32% bracket this year. I'd rather take get a 32% benefit than a 24.
Speaker 4:But if you've once you file that tax return, the ship sailed on that. So that's another I won't go through all of eight benefits, but again, the there's so many benefits to to, the tax extension. Also, when we talk about the preparer having more time, you have more time to organize your information to find deductions. And I don't think I don't think we talk about this enough.
Speaker 2:I know I I know this to be true, but this is a tax extension to file, not a tax extension to pay.
Speaker 4:Correct. So a strategy we use in our private practice a lot of times is if so you know, it gets tricky because someone might you're we're in 2023 right now. Someone might owe 2023 tax estimates. So a lot of times, one of our hacks would be I probably shouldn't give this away, but one of our hacks would be make a large extension payment, assuming you're overpaid, in lieu of making quarterly payments for '23 and it keeps you out of any type of IRS tax penalties. And that way you've paid it in.
Speaker 4:If '23 doesn't go as well as you think, we'll take that money back. But if the year continues to go well, now you're not worried about making those quarterly estimated tax payments.
Speaker 2:And I know we talk about planning and strategy all the time too, and and to some people, that sounds extremely intimidating for something that they haven't planned or strategized before. And filing taxes for some is a is something they don't wanna do. They would rather go on a blind date they know is gonna end terrible than file their taxes. Mhmm. But by doing so, we're just kind of getting accustomed and really just having a good general grasp on what they're going to owe.
Speaker 2:I'm sure I hate to say buys more time, but if it came down to, oh, I know when I'm gonna have to pay when I do push submit, technically, on my returns, it buys some time in that regard to you. So with that planning and strategy, you know what your bill is going to be essentially.
Speaker 4:I exactly. Let me explain in over an analogy here. Doing tax planning and strategy, which you get of many of the strategies you could take advantage of are what we call p strategies in the teaching tax school system, meaning close to your end. By extending your tax return, you have more time to do that. The importance of tax strategy is this.
Speaker 4:I want you to think about sports. Football, basketball, baseball, soccer, those are, you know, pretty big sports, but any sport that you play. Now some of you aren't into sports. You might be into music, so think about an orchestra or a musical band or a band. Some of you might be in a gaming.
Speaker 4:So think about if you're all if you're gaming with friends, you're playing, you know, a a game where you're you're you're battling together. Like, the game's escaping me right now where you kinda,
Speaker 2:Well, I'm not sure either. Anyway so we're not cool enough.
Speaker 4:Right. We're not cool enough to do that. So you're all gaming together. Think about you, four people getting together to starting playing their instrument. You could be the best at playing your instrument, but if you're not all playing the same song and vibing together, it's not good.
Speaker 4:If you're play basketball and you just have five players running around and no set play, if you're great athletes, you might score a couple points, but you're not gonna win games. That's tax strategy. That's a great that's a great one. So simply put. Final thing I wanna mention as we kinda run out of time here.
Speaker 4:If you tax extensions do not increase your auto risk. Well, I've yet to find any prima facie evidence that a tax extension increases your auto risk.
Speaker 2:And I go that it doesn't. And I'm sure there's some some IRS employees out there that would actually say, yes. Please file an extension because we have enough to do come those couple months. They I mean, they probably I mean, it's an assumption. I do not know this, nor would it be public knowledge even if it was true, but I can only assume as much.
Speaker 2:Right? So think about it. If you file if you file extension as part of your strategy, you are doing the IRS a favor. It's not really that case, but it's if it makes you feel better.
Speaker 4:Here's the thing you want I want the biggest takeaway I want you to remember from this podcast. You want the best result possible. For many, many people, the best result possible is to provide you with more time. If providing yourself more time to either find deductions, do tax planning, post your own tax planning, make contributions to retirement plans. If that additional time gives you a better result, then a tax extension is a no brainer.
Speaker 4:Okay? If it doesn't give you a better result, then file your tax return once you have all your documents and you're and you're ready to work with your preparer. But remember, part of getting the best result possible is having a preparer that's competent, rested, and can give you their full attention.
Speaker 2:And not that you would know that from experience. It's not like you've ever filed a return for anybody. Exactly. And I know I've given you mine in a crunch time too. So I'm speaking from from a personal side, but, well, this this was a great topic.
Speaker 2:I think we dove into a lot of things. I almost all I love throwing that word around guarantee because I can almost guarantee this one as well. I almost guarantee there will be questions around this, and not to sound like a sales guy or a broken record, but there is our Facebook page, for teaching tax flow and also our private group called defeating taxes. To make it even easier, just go to defeatingtaxes.com. It'll drive you directly to that page.
Speaker 2:Drop some questions in there. Get a hold of our team. I know a lot of our listeners, we communicate with regularly via email, phone, text, all the channels. But please reach out. Please reach out.
Speaker 2:I mean, we're we're a host of knowledge, and that's what we're here for.
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Speaker 2:approachable content. Absolutely. Absolutely. Well, thank you, Chris. Thank you everybody again for joining us on Teaching Tax Hold the Podcast.
Speaker 2:Have a great, great week. Write down some notes. Take a breath. It'll be okay. Filing that extension is not the end of the world.
Speaker 2:It's part of a positive strategy. So we will see you next week. John here from the Teaching Tax Flow team. As always, thanks again for listening into the show. We had a great time doing it.
Speaker 2:Had a little fun in there as always, but I think we definitely got across some of the best information we can regarding this topic of the value of a tax extension. Obviously, it's something that some people take advantage of, others don't, but we look forward to hearing your thoughts and maybe how you have or haven't utilized this in the past. So drop into defeatingtaxes.com. That'll send you directly to the Defeating Taxes Facebook group. Let us know what you think of the show.
Speaker 2:Let us know what you think of the topic. Maybe chime in on some other questions others have had and keep the conversations going. But as always, thank you so much and we look forward to seeing you guys soon.
