Ep. 130 | Who Should File A Tax Extension
Download MP3Hey, everyone, and welcome back to the teaching tax full podcast episode 130 today. We are gonna dive into who should file a tax extension. So before we do that, as always, let's take a brief moment and thank our episode sponsor.
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John Tripolsky:Alright, everybody. Clearly, you know why you're here. We're talking about tax extensions. It's that time of year where either you feel extremely prepared and ready to file your returns or have already, or you are in the frantic actually, I should say there's three things, or you're in the frantic mode of, oh, boy. I only have a very, very, very limited time to get this done, or you've actually filed an extension already, and you're in good shape here for a couple months.
John Tripolsky:So let's talk about it. Chris Bacchero, welcome back to your own show, sir. How are doing?
Chris Picciurro:I'm doing fabulously. Fabulously. And, how are you today?
John Tripolsky:I'm doing good, man. Doing good. I know we we're coming off of a little, we'll call it an Eastern Seaboard there with a conference down there and some other things over the past few weeks and and months, but, it is. It's it's that time of year. Right?
John Tripolsky:So this is this is something I know a lot of people are afraid of. I know we were down in Richmond, Virginia, not long ago, and it seemed like that group was pretty aware of the power of a tax extension, but not everybody is. Right?
Chris Picciurro:Absolutely. A tax extension is not something negative. I'm very passionate about spreading the word that tax extensions could be an amazing tax planning tool, and, we use it quite often. I could tell you in our private CPA practice, we're probably about a 75% tax extension rate. Even though we're working very hard during the peak compliance time of year, which is February, March.
Chris Picciurro:Tax extensions are not a bad thing. And what we wanted to talk through on this topic or this episode is who should file a tax extension. You are right. When you start working with experienced business owners and real estate investors, the vast majority of those people will be extenders, and there's a very, very good reasons why you would want to be. Ultimately, remember, the goal is to legally and ethically reduce the tax you pay in your lifetime and get you the best result possible on your tax return.
Chris Picciurro:That doesn't mean the quickest result, the fastest turnaround result. It's the best result possible. That's a team sport. The majority of people that listen to this podcast, I imagine, work with a tax professional. But even if you don't, it it could be a team sport when it comes to collecting information.
Chris Picciurro:So let's jump into who should file a tax extension. If you're listening to this, you might like be like me. I filed a tax extension. I have not a worry in the world about it. I have until, you know, on the personal tax return.
Chris Picciurro:So let's talk about personal returns real quick. On the personal return, I have an extra six months to file my tax return. I have till October October 2025 to file my 2024 tax extension. And there's a lot of things that can happen during 2025, that could affect what I do on my '24 return. To see what happens.
Chris Picciurro:So then come real estate transactions and that sort of thing. So if you might be in that situation, I I you know, we have some other content. If you hurried and hastily filed your return and think that you didn't get the best result possible, the positive is is you can amend your return for up to three years. But right now, we're talking about who should file that extension.
John Tripolsky:And kinda staying true to that question, right, of who should. Right? I think it's I'd wager a bet that a lot of people that could benefit the most from it probably think it's like a it's a death wish if you file that. Right? And and I think one of you know, I know we talked about this much earlier on.
John Tripolsky:I think it was in in the early episode 20. So roughly about two years ago, you know, we touched on this topic specific, but it's not and tell me if I'm wrong, but in no way, shape, or form is filing an extension an automatic year on the audit list per se for the upcoming years. Right?
Chris Picciurro:Exactly. If someone has some information that ties filing extension to a higher auto rate, I'd love to see it because I've been doing this for almost twenty five years, and I've yet to see any information. Now inherently, okay, returns that are extended are typically more complicated. So maybe there might be a higher audit risk on returns that are extended. However, I have yet never seen anything that says filing extension causes the audit risk to go higher.
Chris Picciurro:In fact, I would think the opposite. Because if you're scuffling and and hurrying and scurrying to file a return by April 15, that's not accurate. Your audit risk is going to skyrocket.
John Tripolsky:That's a great point because, yeah, if people are in a rush to do it right there, you know, say it's a two weeks or or a week or haven't forbid a couple days before before a deadline, your chances of missing something I mean, small as it is is, know, adding an extra zero to something, you know, when you go to file could throw you throw you right off a cliff. Right?
Chris Picciurro:Right. I mean, how many times has someone been think about this, everyone, and then we're gonna jump into this. How many times have you been driving to the airport and you're kind of in a hurry driving to a meeting, and guess what happens? It's that time where one, traffic hits. Two, you need gas.
Chris Picciurro:Right? Because, oh gosh, I should've got gas yesterday when I wasn't in a hurry. Or three, just something stops you because your margin for error is very little due to time constraints. So don't put that pressure on yourself. File the extension and and move on.
Chris Picciurro:Now remember, a tax extension gives you an extended time to file but not pay. So if you think you're going to owe, I highly advise you make an extension payment. And one of the cool things is this. Let's say you're not sure if you owe on your let's let's say it's 04/10/2025. You're not sure if you're gonna owe on 2024, but you know you're gonna have a first quarter estimate that's gonna be due for 2025.
Chris Picciurro:One of the hacks out there is this. Instead of making your first quarter twenty twenty five estimate, make it as 2024 tax extension payment. Guess what? If you're overpaid, big whippety do. All you do is carry that forward to your 2025 estimated tax payment, or you get your darn money back.
Chris Picciurro:John, you could see I get a little fired up about these things.
John Tripolsky:Yeah. Yeah. The we're, you know, we're we're gonna have to add this one to the the list of, you know, poke the bear topics. Kind of like saying somebody is a ten ninety nine employee. I know you love that one.
Chris Picciurro:Oh, yeah. That's another that's another good one. But Oh, good. Great.
John Tripolsky:So Anyways, let's lower your blood pressure.
Chris Picciurro:Yes. Let's get you back down. So when should you file an extension? Okay. The number one reason we're gonna go through five reasons.
Chris Picciurro:The number one reason is quite frankly, you can't file a dang return because you're waiting on key documents. You know, you might be waiting for even though w twos are due by, let's say, the January, that doesn't necessarily mean you're going receive it. What if you worked for an employer that went belly up, that has no accounting, no bookkeeping? This happens quite often. Now there are ways you could do what's called a substitute w two by taking your last pay stub, but and and trying to do trying to do a return, but you might be waiting most likely for k ones.
Chris Picciurro:So if you are waiting for information and key documents, bookkeeping, anything, wait. File an extension because you have incomplete information. You don't you you don't throw a pizza in the oven. And then when it comes out, John, if you did this, I'd be mad. Right?
Chris Picciurro:Don't put a pizza in the oven. Break take it out, and then you say, oh, jeez. We forgot to put sauce on it. You can put that cold sauce on some burnt cheese. So get all your darn ingredients together before you put the pizza not to say we're baking your tax return or cooking your books.
Chris Picciurro:We're just saying make sure you have all the ingredients before you put a pizza in the oven. That's a great disclaimer. Keeping tax law, you're gonna realize we're starting to use more pizza examples.
John Tripolsky:We are. We you know, it's funny that when I think the hamburger came up in something. The pizza came up. Yeah. We're just here to make people hungry.
John Tripolsky:Hungry for tax strategies.
Chris Picciurro:Exactly.
John Tripolsky:I like it.
Chris Picciurro:Second reason, if you're a business owner or real estate investor, which is the vast, vast majority of our private CPA firm client base, your returns are gonna be complex. Remember, I think I know we have some content out there in teaching tax law. By the way, if you're listening to this, thank you. Number one. Number two, we're doing this for free.
Chris Picciurro:And number three, go subscribe to the YouTube channel. We're just at this conference. Peep and I'm not trying to brag, John, on on your editing, but people loved our content. And they're like, wow. We love the videos.
Chris Picciurro:We love the podcast. Yeah. That's just a tip of the iceberg. Go check out the teaching tax slow YouTube channel because we've got hundreds of longer form videos, not to five, ten minute videos that dive into all these all of these topics. Okay.
Chris Picciurro:So we'll move off of our off of my my ban myself proclamation of the YouTube channel. But if you're a business owner or real estate investor and you have a complex return, definitely file an extension, and that goes for business returns now. If you're a s corp or partnership or a c corp, you might be figuring out your depreciation schedules. You might be waiting on a cost segregation study. You might have bookkeeping cleanup.
Chris Picciurro:There's a lot of things that go in to preparing those type of tax returns that it's extremely common to file an extension.
John Tripolsky:And it makes sense, and it's it's easy to do. Right? Especially if you're working with a tax professional. You could say, hey. You know what?
John Tripolsky:I mean, maybe this is bad advice. You know? This is coming from the marketing guy. I I know, Chris, you guys in in your private practice, right, is I wouldn't say that you assume an extension, but I think it's just kind of built into y'all's workflow. Right?
John Tripolsky:Like, you you have that understanding. The client has that understanding where it's not you know, where's your stuff? Where's your stuff? Where's stuff? Okay.
John Tripolsky:Oh, crap. What can I do now? Oh, let's file an extension. Like, everybody knows it's kinda coming. And like you mentioned too, it's it gives you the opportunity to take care or, I should say, take advantage of a lot of opportunities that would have been missed.
John Tripolsky:So I think, you know, somebody that's working with a tax bar already, if you haven't filed an extension in the past, maybe talk to them about it. Probably not on April 14, but at some point, you know, leading up to that date.
Chris Picciurro:Okay. Yeah. How many times you've been to a restaurant and the restaurant gets behind? You complain to the waiter or waitress. They hurry up and get your food out, and it's wrong.
Chris Picciurro:Right? You don't want that situation. Do you want your tax professional half awake on April 11 pounding down coffee at, you know, 09:30 at night working on your return, your biggest bill of the year. You have someone working on that's half awake that's super competent, and if you just waited two weeks, you're gonna get their best. Not smart.
John Tripolsky:Another another food and restaurant reference, by the way.
Chris Picciurro:Hey. It's easy. It's easy to make. Alright. The third thing.
Chris Picciurro:It kinda ties in with the second thing and the first thing, but let's say you're planning a major deduction or strategy. We talked about cost segregation studies. You might have a cost segregation study that you're using for the previous year that you're still waiting on the report to come in. That's no normal when you own a business or have real estate. You might be funding a retirement account.
Chris Picciurro:Guess what? For many self employed people, if you file a tax extension, that gives you extra time to contribute to your retirement account from the year before. So the fact of the matter is give yourself more time by filing the extension if you're looking at implementing a tax strategy that you can implement post year end. And, actually, John, you referenced a wonderful trip to our friends in Richmond, Virginia in a real estate we'll just call it say it out, deal makers, real estate group, that many of those people have extensions, and many of those people wanted extra time to implement the strategy. So if you're planning a deduction or strategy that's major, file the extension.
John Tripolsky:Hey, Chris. If I could play off that here for a quick minute to, again, kind of you know, we we had a table there. You were you were speaking at some of them, and a lot of the times, you know, I found myself kinda kinda hover around our table a little bit and then obviously, ease dropping some conversations that you were having with some attendees there. And, again, back to, you know, that audience, very well versed in what they do. You know, they are and I wouldn't even say a lot of them are just real estate investors.
John Tripolsky:A lot of them are, like, masters of real estate investing, we should say. And it was very interesting to me to listen. You know? I can't remember exactly what conversation it was specifically. I know there were multiple, but where, you know, you guys kinda discussed a little bit on, you know, where they're at, what their goals are, just very briefly.
John Tripolsky:It wasn't like a, you know, a discovery meeting or session at all. Right. But then I feel like a lot of those conversations right around the mid you know, midway point a little bit more towards the end, I feel like tax extensions came up on every single one of them. I mean, given the time of year it was, but I feel like you asked them if they had filed an extension. And then if the answer was yes, I'm again not referencing a specific one that I I can't recall, but immediately, it went into a very deeper conversation on just how you have a lot of opportunity from the previous year to take advantage of stuff, but it's not something that you can do, you know, with, the click of a button and then stacking, you know, stacking and blending all these opportunities and strategies.
John Tripolsky:It's incredible. And even these people that were incredibly, like I said, well versed in what they do, their eyes kinda light, you know, light up a little bit. Like, oh, man. Like, I didn't think of that. Or, wow, this could be a a bigger play, or it just it was very interesting to see how that works, and that's not something they could have done, obviously, if if an extension wasn't in play.
John Tripolsky:Right?
Chris Picciurro:Yeah. The thing is April 15 is the due date for any tax that you owe for the previous year. That's what it is. If you if you pay that on a tax return, then you filed. If you wanna pay that, you know, if you wanna pay that on a tax extension, great.
Chris Picciurro:But it's not necessarily the end all be all due date of filing a tax return. So number four, reason you should file a tax extension. We have no drum rolls, but we should have one. We'll talk to the editing company on that one. Major life event.
Chris Picciurro:Typically, it's going to be a change in marital status, you know, especially if there's a separation or divorce. Many, many times, there'll be a you know, that's something that gets negotiated if they're if they're fine. First of all, can they do they have to file together? Were they was there a legal separation? Who's claiming the certain deductions?
Chris Picciurro:Who's claiming certain dependents? So if you have a major life event, many, many times, you should file the tax extension. Now it could be that you got married, and you're trying to figure out the last thing on your mind was taxes. You're a newlyweds. You've got to, let's say, rent a new apartment or you buy a new home or there's just a lot going on.
Chris Picciurro:You're trying to figure out your finances, and it's this sneaks up on you pretty, pretty quickly. It could be you had a child or you could you know, it could be something. And, again, a life event. You could have inherited a home from a relative. There's a lot of things.
Chris Picciurro:Life happens. Life happens all the time. So you've got to realize that, hey. A life event occurred. It might make sense for me to file an extension.
Chris Picciurro:And then the the relief people get when you file the extension for them and they realize the world's not, you know, it's like, John, remember 1999? Gosh, everyone thought like the world was gonna end and all this all these guys were thinking their computer's gonna crash and all that stuff.
John Tripolsky:Why two k? I never
Chris Picciurro:Yeah. I never fig I never thought anything would happen. And if it did, okay, so it did, but nothing happened, really.
John Tripolsky:Right. It's like somebody saying, okay. Well, here's the date. It could happen by that, but I will give you twelve more months to go out or six more months to go on. Get a new computer if you're really that worried about it.
John Tripolsky:That's a y two k reference there.
Chris Picciurro:Look at the look at the life of that moving. John, look at your situation, not to get too personal. When you, you know, when you have a change in life, you you've moved from different states. You've owned businesses. You've gotten married.
Chris Picciurro:You've had a child. You've, again, moved back to another state. So you've you've owned a short term rental property. You've sold that rental property. You owned a primary residence.
Chris Picciurro:You sold that. You built a new pro you have a new primary residence. You've had a lot of life events that have made made it make sense to file extensions.
John Tripolsky:Right? Yeah. Without it, it's like, oh, man. I mean, hey. Like you mentioned, I think, you know, one of the ones that I feel like comes up a lot, right, is the k ones.
John Tripolsky:I feel like a lot of people, they stress because they haven't received those. Right? And they're sitting there like, where they at? Where they at? Where they at?
John Tripolsky:Where they at? But Mhmm. You know, who knows what's happening with those? Right? And then, like you said, that extension buys you the time to to go hunting and then find where those are floating around at.
Chris Picciurro:And you go and and the thing is is k ones are and we have a a a episode k one for dummies. They are very complicated forms. You know, if you so there's the the the tax professionals that prepare those. You know, some of the ones in our private practice, we've got 200, two hundred 50 k ones that go out on one entity. It could be a real estate syndication.
Chris Picciurro:Syndication. That's a lot of of reconciling. And a lot of times, it comes down to the operator's books and records, so it could have nothing to do with your tax preparer. Right? So it's natural for those to come out a little later.
Chris Picciurro:And, you know, that's just that's just the way it is. So major life event is number four, and then you kinda ran into number five. And I've mentioned it a little bit. Some of these blend together. When you're driving, when you don't leave enough self enough time, let's say you're rushing your child to a practice, you're going to a meeting, you're meeting your friend for a coffee.
Chris Picciurro:It always happens. There's always, oh, I got there, but I can't find parking. Oh, I've I need gas. Oh, there's traffic. You're rushing or stressed.
Chris Picciurro:Wouldn't it be nice that one time, John? I'm sure everyone's been in this situation. You're going to meet somebody. You're, like, looking at your GPS. You're gonna be about two minutes early because you're already knuckleheaded around, and you're you're gonna almost gonna be late.
Chris Picciurro:Traffic hits. Now you're gonna be two two minutes late. Now you start feeling terrible and you're like, oh, should I tell the person I'm gonna be two minutes late? Once it gets to, like, three or four minutes, I always tell people. Then you get there and you can't find parking.
Chris Picciurro:What if you could just push a button and say, hey, friend. I'll be give me fifteen extra minutes. I and then I'll come in. And now you're not running in flustered and stressed. You're coming in early.
John Tripolsky:Right.
Chris Picciurro:So if you're rushing or stressed, just file the extension. And, honestly, most of the extensions, if you talk to tax professionals, if they had some truth syrup, they're gonna say, yeah. I could probably get that done within the next thirty days between April 15 and May 15 really well while I'm still fresh. So it's not like just because you file an extension, you have to wait six more months. But extended tax returns get done in the thirty days after they April 15.
Chris Picciurro:That's very normal.
John Tripolsky:Right. Right. And you and you bring up a great point too that I wanna circle back around too if we can maybe just touch on is, you know, that's the date that things are due. So so what happens? Say you owe just we'll just use an even number.
John Tripolsky:Say you owe a thousand dollars this year. You file an extension. Don't make that payment to the IRS by April 15. What happens there? What what happens between that and, you know, the time they file, say, in May, October, whenever it is.
Chris Picciurro:Alright. So you're you're saying you
John Tripolsky:So they owe.
Chris Picciurro:Didn't make the payment, and you filed a month later. Oh gosh. You'll probably get penalized, like it depends on how much you owe, but let's say a couple percent. You know?
John Tripolsky:Let's say
Chris Picciurro:if you owed the thousand bucks, you'd probably pay in $30 a penalty in
John Tripolsky:all reality. So there is the penalties, and that's what I was getting at is the penalties that are being added on top of it. It's not it's not a get out of paying jail free card. It's a get out of filing jail free card. The payment You start to
Chris Picciurro:pay by by April 15, but you can file an extension.
John Tripolsky:Perfect. Perfect. Just for those that got too maybe they got too excited about the filing the extension. I know we touched on a little bit earlier, but I wanted to circle back around on that just that there there will be interest penalties.
Chris Picciurro:You will always but but and we're not advocating this, but let's be real here. If you owe the thousand dollars, the IRS doesn't know you owe the thousand dollars until you file the return. So you would just have to pay that penalty once you file.
John Tripolsky:Right. Right. Exactly.
Chris Picciurro:You're gonna get a bill on April 16 for the thousand bucks.
John Tripolsky:Right. Perfect. Perfect. And that's like you said too, it's, you know, again, not to advocate for not making that payment. Right?
John Tripolsky:But say you owe say you owe a hundred thousand. Right? You file an extension. Not only are you getting more time to file, getting your ducks in a row, the likelihood of you saving more than what the penalty may be. Well, maybe not a hundred thousand.
John Tripolsky:That might be a stretch. But it just all in all puts you in a much, much better spot. It's not like you're getting hit with a 25% penalty and a, you know, $3,000 late fee or something like
Chris Picciurro:that. Correct. Awesome. I mean, it could be so, yeah, definitely talk to someone about and and, again, like I said, if you're if you're concerned about owing, just Mhmm. Overpay.
Chris Picciurro:I mean, you can get the money back. Right. Awesome. It's not gone forever.
John Tripolsky:And it's good advice. It's good advice. And this one I like. I mean, it's again, I think now that you know that this exists, for those that were listening, I mean, I'm sure you've heard this come up somewhere, but it's definitely like we mentioned early on. It's not a it's not a death wish.
John Tripolsky:It's not this big 30 page form you need to fill out to make this happen. You're just better to do it. Just do it in in most situations. Right?
Chris Picciurro:Right.
John Tripolsky:Awesome. Awesome. Well, I know we got some great topics coming up as always here on the podcast. Anybody that's listening to this, the day that it comes out, you literally have one week to file that extension. Actually, little bit shorter.
John Tripolsky:Don't wanna do it on the fifteenth, but take advantage of it. If you have any questions in the meantime, reach out to us. Get on defeatingtaxes.com. That's their private Facebook group. Well over 2,000 people that are in that now.
John Tripolsky:Post some questions. Post some questions. Any questions you have. Oh, maybe how do I file an extension? Or has anybody else in this group filed an extension?
John Tripolsky:What did you do? Any of those questions, reach out to the group. Reach out to us here at Teaching Tax Flow. Literally, we are here to answer questions and make your life easier. So until next time, next week, different day, completely different topic, roughly the same time.
John Tripolsky:We'll see everybody back here again on the Teaching Tax Flow podcast. Have a great week, everybody.
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