How the wealthy save taxes by filing an extension (and how you can too)

 

We’ve talked a lot about extensions as we’ve made the transition to a proactive only firm, but what does that really mean for you and how can you take advantage of it to help you save taxes? Here’s what you need to know:

Here’s the TL:DR

  • Extensions give extra time to save you taxes, but the tax is still due before April 15th (March 15th for S-corp and Partnerships)

  • If you’d like our help initiating your expected balances due, let us know! (see below)

  • Regardless of when your call is scheduled, we’re available all year round to chat about planning and strategy opportunities. You don’t need to wait until then to talk to us about important things happening in your world.

And we’ve recorded a video explainer here if you’d rather listen than read!


What is an extension? - Income tax returns really have 2 different due dates, the due date to pay the tax (4/15 for individuals, 3/15 for S-corps and partnerships) and the due date to file the returns (10/15 for individuals, 9/15 for S-corps and Partnerships). Getting an “extension” just means you’re going to take advantage of the full amount of time available to you to file your returns, and not rush to get them in early if there’s no a good reason to do so.

But how will I know how much I owe in April if we haven’t completed the forms? - Remember in the fall when we made planning mandatory for most of our clients? This was one of the many reasons we did that, so you’ll know how much to pay in April for your 2022 tax due, as well as your Q1 estimates! As long as that tax is paid, you’ve met your obligations!

So why is it better to extend my tax return?

It allows you to see into the “future!” Remember back when we did fall planing and we asked you about what you thought 2023 would look like? We weren’t just being nosy, timing is one of the greatest tools we have in helping you reduce your tax liability. The more we know about the next tax year, the better advice we can give on things where we have some control of timing, which in the long run saves you taxes!

It gives you more time to fund retirement accounts! Got a SEP, profit share, or SIMPLE for your small biz? The extension gets you a full 6 more months before you need to fund that, meaning that as late as October, you can still do things to reduce your last year’s taxes!

There’s less risk of needing to refile for corrected forms! Do you have investments? “corrected” forms are becoming more and more common, and they’re coming later and later. Rather than paying for an amendment later, an extension gives you time to make sure all the forms you’ve received are final!

The govt will have the tax laws finalized (hopefully)! Believe it or not, most years the government hasn’t even finished creating the tax forms needed until March, and we’re getting clarifications of the rules well into the summer. Extensions allow us to decide when we’ve gotten enough clarification on the new rules to get the best outcome for you, rather than rushing through on their preliminary guidance.

Your CPA has more time to ask questions and be strategic! Remember when we did that planning with you back in the fall? We think it’s a great idea to follow up and make sure those things we recommended get implemented, and to do that we need to devote more time to each return than cramming an entire year’s worth of work into 6 weeks between March and April will allow us. It’s the way our industry has always worked, and there’s no way we could provide the level of service we promised if we keep doing it that way.

We’re actually available to talk about other things this time of year! How many times have you heard me say “let’s follow up on that after tax season?” Regardless of when your tax return is scheduled for completion, if you have questions during the year we want to be available and properly planning our queue allows us to be strategic with you even outside of our dedicated check in times. We’re still going to be careful with our scheduling to be sure we’re focused on the right things, but where in the past we’ve been very unavailable, we are leaving space every week in the queue to be able to support non-tax issues all year long.

OK that makes sense, what do we do now?

Read your fall plan! In your fall plan we outlined any action steps that needed to be taken in the first part of the year, such as expected payments, estimated taxes and any elections that needed to be made. Take a look at that document and familiarize yourself with those action items, and if you have questions or feel like there’s been a material shift since we did that planning, reach out!

Let us know if you’d like us to help you make those payments! We’ll be following up as we’re processing the extensions, but for clients whose fall plan projected action steps for 3/15 or 4/15, please let us know the following:

  • If you’d like us to initiate those payments, or if you will make them yourself

  • If we are initiating, confirm the last 4 of the account you’d like them to be withdrawn from and that the cash is available

  • If you are initiating, send us the confirmations!

Keep in touch about changes in your world! If I haven’t stressed it enough, the most important part of what we’re doing together is planning and communication, not the forms. While yes we’re spacing out the tax review meetings for all the great reasons noted above, that doesn’t mean I don’t want to hear from you! Here’s a few things that I would LOVE to chat about, no matter the time of year:

  • Big financial changes in your business or personal life

  • Buying property (let’s get ahead of what your bank will need for financing!)

  • Starting new ventures!

  • Giving your business a profitability check up

  • Stock sales, losses or other big investment moves

  • Or anything else that you feel like is important in your world that we should chat about!

I look forward to connecting all year long!




Ben & Team