6 Reasons You Should Consider Filing an Extension for Your 2013 Taxes (Score One for Procrastinators!)

19

In just a few more weeks the tax deadline will be here! Are you ready?

Every year around this time I get a lot of calls from clients who don’t know whether they should hurry and get all their tax documents together or if they should just file for extension and then have the entire summer to work on their tax stuff. If you are wondering whether you should file your taxes now or extend your taxes, here are some important tips to consider.

First, filing an extension allows more time for you and your CPA to review, revise, and strategize before submitting your taxes to the IRS.

It also allows you to feel less pressure knowing you have more time. If your CPA has more time to prepare your tax returns, then they may be able to discover additional tax saving opportunities that may benefit you. Think about it, why would you want your tax return to be worked on at 2 a.m. the week before the deadline when your CPA is operating on very little fuel?

You don’t!

Related: I Like Paying My Taxes (You Might, Too, After Reading This!)

Here are 6 reasons you should consider filing an extension for your 2013 taxes:

Time is on Your Side:

If you are unorganized with your records or simply unsure of what is tax deductible, then it may be beneficial to take the time to make sure nothing is missed. Organizing your W-2s, 1099s, receipts and rental statements can sometimes take longer than expected so be sure to give yourself a little extra time. For those of you who do fix and flip real estate, you may have lots and lots of expenses to capture so give yourself plenty of time. Giving yourself that extra time will also ensure that your taxes are done correctly and ALL of your tax deductions are captured so that you are getting the maximum refund possible.

Less Chance for Mistakes:

You may have experienced times when your tax documents arrived late, or worse yet, you found out that some tax documents were re-issued after your taxes were already filed! Filing an extension gives you the extra time to make sure everything is accounted for and reduces your chance of needing to go back to make changes with amended returns.

No Penalties for Filing Extensions:

As long as you make the necessary tax payments by the March/April tax due dates, there are no penalties for filing extensions. This is legally allowed by the IRS, so use it to your benefit!

Multi-year Planning:

More time means more planning! If you file your taxes later in the year, then you have more insight into what 2014 looks like for you financially. There may be opportunities to shift items between the tax years to get the best tax savings. Some examples of potential strategies include changing accounting methods, making elections to carry-forward or carry-back certain losses, or whether to take advantage of the bonus depreciation. Use the past, present and future to your advantage!

Power of the Roth IRA:

If you made a Roth IRA conversion in 2013, you have until the date you file your 2013 taxes to confirm or undo your Roth conversion. This gives you more time to monitor your investments to see how they performed and determine whether the Roth conversion was a good move. This special freebie from the IRS gives you until the date you file your tax return to change your mind if you wanted to un-do your Roth conversion. Remember, this loophole is only available if you file your taxes by October 15th.

Retirement Planning:

If you plan on making any retirement contributions to accounts like SEP IRAs, 401ks, or SIMPLE IRAs to reduce your taxes, you may have until the date you file your tax returns to make the contributions and still deduct it for the 2013 tax year. This can be extremely powerful because by filing an extension, you may be able to also extend your deadline for making these contributions as well.

Related: Capital Growth,Cash Flow, Taxes And Timing: Planning for Your Retirement the Smart Way

So, the Real Question is: Why Not?

The IRS allows you to file extensions to get additional time you need…and we can do it for you! One thing to keep in mind is the extension only extends the time for filing the tax return, not the time to pay. If you think you may owe taxes, then let your tax advisor know so that they can calculate extension taxes for you to help you avoid any penalties.

Your tax extension can be filed easily and can give you the extra time needed to make sure that you file the best return possible. This year, make a promise to your money to do all that you can to keep more of it and give less to the IRS. Contact your tax advisor today!

What are your thoughts on filing for an extension? Let’s discuss..

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name
Share.

About Author

Amanda Han of Keystone CPA is a tax strategist who specializes in creating cutting-edge tax saving strategies for real estate investors. As real estate investors herself, Amanda has an in-depth understanding of the various aspects of investing including taxation, self-directed investing, entity structuring, and money-raising.

19 Comments

  1. All good reason, here is another good one. Depending on how much you owe, maybe using that money can get you a higher return then the IRS penalty. Last year, I did a flip using the money that I would have owed to the IRS. Instead of going to the bank, I used money reserved to pay taxes to fund 100% of my flip.

  2. Good point. Although I cant recommend people pay taxes late, it does make sense in certain situations if you can get better returns with that money as compared to IRS interest and penalties.

  3. Brandon Turner

    Hey Amanda,

    I once heard from someone (not a CPA or accountant) that another advantage to filing an extension is that the IRS “fills up” all their auditing spots so your chance of an audit goes down if you file an extension. Any truth to that?

    Thanks for the post also!

    • Brandon- I just finished with a radio interview right now and was asked the same exact question. I have a colleague who works “on the other side” and I asked her this specific question. What my insider told me is that the agents do not have quarterly quotas when it comes to auditing returns so whether you file extensions or not, it unfortunately does not directly reduce your chance of an audit. =(

  4. I have never had to file an extension so this is probably a dumb question … if your return isn’t done, how do you know how much you owe with respect to paying by 4/15?

    • Great question Dawn: Extension payments are based on your best estimate. So if you estimate that you will owe $1,200 in taxes, then you can go ahead and make that $1,200 payment on or before 4/15. If you overpay, then you will get the excess refunded. If you underpay, then you may get some underpayment penalties.

    • Dawn,

      You should always know approximately how much tax you will owe. ALWAYS. This does not mean you know down to the penny, but you should know the ballpark.

      As far as extension payments, here’s what I learned from my days in public accounting. Estimate what you think you will owe for 2013 (for example) when you file your extension in a few months. Estimate your first quarterly payment for 2014, due on 4/15/14, the same as your extension payment. Add the two numbers together; send that amount with the extension.

      If your calculations proved correct when your return is completed, simply apply the overpayment to 2014 liability. If you under-estimated your 2013 liability, the extra from the first quarterly payment is there to make up the shortfall and avoid the interest charged and the late payment penalty. Bear in mind the interest charged and penalty equal about 9% annualized. Also, be sure to add more to future 2014 quarterly payments if you need the first payment (sent with extension) for 2013; you don’t want to be behind starting the next year.

      You might be thinking….I can earn more than 9% on my investment purchases!. Perhaps you can, but did you consider taxes?!? If you are in the 25% tax bracket, you have to earn 12% (9% / (1-0.25)) on your deals to clear the hurdle. If not, you are not actually getting ahead by not paying your taxes when due. If you are, use the IRS’ money!

      Last point – penalties are not tax deductible.

  5. Your accountant will still be up at 2 AM on the day before filing the extension, so cross that one off the list.

    You still have to pay the tax due by the original deadline, and if you overpay, or pay a penalty, it’s not good.

    But more power to you!

    • haahaa Eric. Hopefully I will not be up at 2am before the deadline =). Yes, for those filing extensions it is good to calculate extension payments to avoid any potential penalties. If you are someone who typically gets refunds then it may not be an issue. For anyone who really needs the time to get their financials together, it may make sense to take the time needed to do that (hopefully not staying up until 2am to organize your records).

  6. Thanks for the post. However, when you say you can extend you filing fee without a penalty…what??? Can you more clearly explain that, as I hear about 5% for the penalty, 3% for the interest, so I just want to make sure I am understanding under what exact circumstances you can extend your filing date without receiving a penalty and interest payments. Thanks for your contributions!

    • Hi Lisa: Thanks for your question. If you file an extension by the original due date of the tax return, then there would be no late filing penalties as long as you file the actual tax return by the extended due date. If there are any taxes due, those taxes still need to be paid to the IRS or the state by the original due date of the return. In short, the IRS allows you to file an extension to request additional time to file a tax return. They do not allow for an extension of time to pay the taxes. So if you will be filing an extension, just make sure that you pay in enough taxes at extension time if you want to ensure you avoid late payment penalties. If you don’t know how much taxes is due by April, then you can meet with your CPA to calculate your best estimated taxes due and pay that with your extension application.

  7. Ben Leybovich

    Good stuff as always Lisa!

    So – if filling for extension is good, then is not filing for one bad. I like to do things on time. One click of a button and the QuickBooks files zoom over to the CPA – I like that. No shoe boxes here. Am I being penalized for being prompt do you think?

    Ben

    • No….not at all. If you have all your records organized and you dont need more time to put things together then there is generally no benefit to extend. Some of our clients choose to extend because they want to see how an investment performs from a Roth conversion or maybe extend to buy more time to fund retirement accounts. But outside of these and other extraordinary cases there are generally no downside to filing on time.

  8. One more reason. We get a lot of 1099s. To ensure that we haven’t misplaced any, after filing an extension, I call the IRS in July and ask them to send me a copy of all the 1099s they received. This way I can be sure I have them all. Of course, in April I base my estimate on what I have, plus a bit extra. I like the tip to add an amount equal to your first quarterly payment. Thanks for this timely post.

  9. Amanda. Thank you so much for the thoughtful and insightful posting. You clearly are very good at what you do. I hate filing an extension if it can be avoided. I am pleased to learn you chose on your IRA up to the time you file your return. The upper limit for deducting an IRA bit us this year. I wish our accountant had known that off the top of her head. She is only a few years into tax accounting. While you have few choices in small towns I am sure you can do internet filing with accountants anywhere now. If it is not a violation of any forum rules can you say what the hourly rate is at your firm? I am curious if the rate is very different from my area. Thanks again.

    • Thanks Jerry and I am glad you were able to find the article helpful in tax time =)

      Most of our tax returns are based on a fixed fee depending on what you have going on and what forms need to be filed. Give our office a call and Ivoire our very friendly client relations coordinator can speak with you to provide you with an accurate fee quote to help with your taxes. Thanks again for reading!

Leave A Reply

css.php