By Dave Horwedel, CEO Torchlight Tax
If you’re feeling the pressure of the April 15 1040 tax deadline, filing an extension is a smart strategy.
The main disadvantage is that your NECESSITY LEVEL may drop if you get a six month extension. Then six months later you are in the same situation, except now you cannot file for an extension!
We will help you out on filing an extension for FREE, If you intend to do your taxes with us. Just Contact us at 877-758-7797 or email info@torchlighttax.com
Every year, millions of Americans scramble to file by the deadline. This can result in:
- EXCESSIVE STRESS—This is self explanatory.
- FILING A RETURN WITH MISSING TAX FORMS–Sometime taxpayers file taxes not realizing that they are missing a tax form. This can result in an IRS Examination Letter (and who needs that!) or the need to amend a tax return
- MISSING DEDUCTIONS-. Also, rushing to meet the deadline, they may miss deductions that result in overpaying taxes.
- OTHER MISTAKES THAT INCREASE AUDIT RISK- This rush can also result in other mistakes that increase audit risk.
Filing a tax extension can be a winning strategy. Consider this:
1. An Extension Buys You Time to Do It Right
Filing an extension gives individual taxpayers an extra six months (until October 15) to finalize their returns. This added time allows you to:
- Gather missing documents.
- Organize your finances.
- Catch overlooked deductions.
- Review your return more carefully.
The IRS doesn’t penalize you for filing your return late if you file a proper extension. The penalty only applies to unpaid taxes, so estimating and paying what you owe by April 15 helps you avoid additional charges.
2. Rushing Increases Your Risk of Audit and Overpaying Taxes
When you’re rushing to beat the clock, it’s easy to overlook tax-saving opportunities. Also, any time you fail to report a 1099, W2, K-1 or certain other income forms that were sent to the IRS, you are likely to get a computer-generated audit letter! That’s right. A computer sends you an audit letter because you did not report the form. That adds insult to injury. It is bad enough to risk having an IRS employee catch you on something. Maybe they will miss it. But a soulless computer sending you an examination letter. That’s not fair!
An extension gives you time to:
- Review expenses more thoroughly
- Clean up your bookkeeping.
- Receive delayed tax forms like K-1s.
- Ensure accuracy on complex returns (especially for business owners or real estate investors).
3. Filing Later Can Reduce Your Audit Risk
Believe it or not, filing an extension can reduce your chances of an audit.
Reportedly, the IRS audits in waves based on early filings. By filing in August or September, your return may miss that initial audit wave entirely. This isn’t a guarantee, but it is commonly believed that filing a month before the extension deadline decreases audit risk.
4. You Still Need to Pay—But You Have Options
Let’s be clear. A tax extension gives you more time to file, not more time to pay.
To avoid penalties, estimate your total tax liability and submit payment by April 15. The penalty for not paying is .5% per month of what was not paid by April 15. The penalty for not filing your tax return is 5% of the taxes owed—that’s 10x higher than the penalty for not paying. You avoid the late-fling penalty by filing on time or filing for an extension! So always file a return or extension by April 15, even if you can’t pay the full amount right away.
6. Some deadlines don’t move—even if you file an extension. Most notably:
- Roth IRA and Traditional IRA contributions for the prior tax year must be made by April 15.
- HSA contributions also have a hard April 15 cutoff.
- If you’re self-employed and want to establish a Solo 401(k) for the prior year, it must be set up by April 15l
Also, certain real estate investment tax strategies, such as cost segregation and accelerated depreciation, can be done during the extension period.
CONCLUSION:
Tax extensions aren’t just for slackers or disorganized people They are also for those who use the time to do it right and save tax dollars.
Filing an extension potentially lowers your audit risk, helps you avoid mistakes, and gives you time to talk over tax strategies with a pro. Sure, we at Torchlight Tax consult during tax season. But our time on April 14th may be a little limited. With so many moving parts—especially for business owners and investors—buying yourself–and us–a little time might be the most financially savvy move you make all year.
One last point. FAILING TO FILE AN EXTENSION BEFORE THE DUE DATE IS THE MOST COMMON AND UNNECESSARY MISTAKE IN THE WORLD OF TAX. Ok. Maybe you don’t know all the advanced tax strategies and maybe hiring your party-going cousin to do your bookkeeping may have been a mistake.
But 10Xing your penalties by not filing an extension or filing your tax return late is RIDICULOUS. Just call us.
CONTACT TORCHLIGHT TAX FOR A FREE CONSULTATION OR A FREE EXTENSION AT 1 877 758 7797 or email info@torchlighttax.com.
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