{"id":1642,"date":"2022-01-01T08:41:27","date_gmt":"2022-01-01T12:41:27","guid":{"rendered":"https:\/\/www.saudercpa.com\/blog\/?p=1642"},"modified":"2022-01-01T08:42:44","modified_gmt":"2022-01-01T12:42:44","slug":"should-i-extend-my-tax-return-2","status":"publish","type":"post","link":"https:\/\/www.saudercpa.com\/blog\/2022\/01\/01\/should-i-extend-my-tax-return-2\/","title":{"rendered":"Should I Extend my Tax Return?"},"content":{"rendered":"<p><strong>Should I Extend my Tax Return?<\/strong><\/p>\n<p><em>Credit: Jacob M. Dietz, CPA<\/em><\/p>\n<p><strong>\u00a0<\/strong><strong>Tax Season<\/strong><\/p>\n<p>Time steadily keeps ticking.\u00a0 Another year has nearly ended, another year will soon dawn.\u00a0 Time brings new things and brings new opportunities to do old things.\u00a0 Each year brings a new opportunity to file taxes, which is a practice that started millennia ago.<\/p>\n<p>Some taxpayers always file timely, some always file an extension.\u00a0 Which option is right for you?\u00a0 Read this article to consider the benefits of both timely filing and filing after an extension.<\/p>\n<p><strong>Benefits of Timely Filing<\/strong><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Clarity and Precision<\/li>\n<li>Avoid Procrastination<\/li>\n<li>Allow Partners to File Timely<\/li>\n<li>Calculate Quarterly Estimates<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>A taxpayer might file timely to gain clarity and precision.\u00a0 Before the taxes are prepared for filing, the taxpayer likely does not know precisely how much the tax bill will be.\u00a0 Good tax planning, however, might give an idea of the amount.\u00a0 Think of tax planning as watching a deer walking through the field 200 yards away with the unaided eye.\u00a0 You can see it with the unaided eye, but the clarity increases when the scope is placed between the eye and the deer.\u00a0 Likewise, preparing the tax return brings the tax bill into focus.\u00a0 A hunter catching sight of a big buck might shake with buck fever, and a taxpayer catching a glimpse of a huge tax liability might tremble as well.\u00a0 Unfortunately, tax returns do not taste as delicious as a deer, although paying taxes can be salty.<\/p>\n<p>Another reason to file timely is to avoid procrastination.\u00a0 The wise old saying attributed to Ben Franklin \u201cDon&#8217;t put off until tomorrow what you can do today\u201d might inspire some taxpayers to take care of their taxes quickly, even though they could delay if they chose to do so.\u00a0 Filing an extension causes a delay. \u00a0It does not drive taxes away permanently.<\/p>\n<p>One important reason for partnerships to consider timely filing is that the individual partners will need a K-1 from the partnership to file their personal tax returns.\u00a0 A partnership might therefore choose to file timely if some or all the partners want to file their personal tax returns timely.<\/p>\n<p>A fourth reason to file timely is to calculate quarterly estimates for the next year.\u00a0 The safe harbor for tax estimates factors in the income of the prior year.\u00a0 If a taxpayer wants to use that safe harbor, it helps to know the prior year income.\u00a0 If the taxpayer does not know it, then they may pay more estimates than necessary, or perhaps pay too little and miss the safe harbor.<\/p>\n<p>Interest rates that banks pay you on cash is not high at the time of this writing.\u00a0 If cashflow is good, a taxpayer might happily pay in a high amount in estimated taxes to try to cover the tax liability. \u00a0The lost interest earnings may be de minimis. \u00a0If they pay in more than is necessary, they could simply roll forward their payments and pay less later.<\/p>\n<p>On the other hand, if cashflow is tight, a taxpayer may not want to pay any more than they absolutely must pay.<\/p>\n<p><strong>Benefits of Extensions<\/strong><\/p>\n<p>So why would anyone ever extend a tax return?\u00a0 In some cases, the prudent taxpayer will file an extension.\u00a0 Here are some reasons.<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Save on Accounting Fees<\/li>\n<li>Wait to See if Tax Rates Increase<\/li>\n<li>Wait to See if the Next Year Looks Profitable<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>Many tax returns are filed on an annual basis.\u00a0 Tax accountants file scores of returns after December 31 but before April 15.\u00a0 As you can imagine, that provides a buildup of work for tax accountants.\u00a0 If you normally file timely but do not care when you file, consider asking your accountant if you can go on extension to get a discount since you are leveling out their workload.\u00a0 The price savings may make it worth the wait.\u00a0 Good things take time.\u00a0 Sometimes the first buck trotting along the path is not the biggest buck.<\/p>\n<p>From time to time throughout history, tax rates go up.\u00a0 At the time of writing, we do not know exactly what tax increases will or will not come for next year.<\/p>\n<p>If taxes increase significantly from one year to the next, some taxpayers may prefer to defer depreciation until future years, when tax rates are higher, rather than accelerate depreciation on new purchases this year when rates are lower.\u00a0 Without knowing the tax rates, that decision is more difficult.\u00a0 Some taxpayers may benefit from extending to see how it ends up.\u00a0 Patience sometimes pays.<\/p>\n<p>Another reason to extend is to assess how profitable next year will be.\u00a0 If a taxpayer files in February, they have a small idea of how the next year will be, and they might find it difficult to make tax decisions on tax elections, such as depreciation.\u00a0 Alternatively, a taxpayer filing in July would have a much longer timeframe to assess how well the next year is going.<\/p>\n<p>If the next year appears to be going well, the taxpayer may save some depreciation to reduce income in that year.\u00a0 Alternatively, if the year past was great and the next year is challenging, the taxpayer may elect to accelerate depreciation into the high-income year.\u00a0 The additional months may reduce the guesswork.<\/p>\n<p><strong>To Extend or not to Extend?<\/strong><\/p>\n<p><strong>\u00a0<\/strong>As you read the article, did any of the points resonate with you?\u00a0 Different taxpayers will make different decisions.\u00a0 Do not automatically file on time, and do not automatically file for an extension.\u00a0 Consider which path makes sense in your situation.\u00a0 Hopefully this article brings some clarity and perspective to you as you hunt for the answers.<\/p>\n<p><em>This article is general in nature, and it does not contain legal advice. \u00a0Contact your advisors to discuss your specific situation.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Should I Extend my Tax Return? Credit: Jacob M. Dietz, CPA \u00a0Tax Season Time steadily keeps ticking.\u00a0 Another year has nearly ended, another year will soon dawn.\u00a0 Time brings new things and brings new opportunities to do old things.\u00a0 Each year brings a new opportunity to file taxes, which is a practice that started millennia &hellip; <a href=\"https:\/\/www.saudercpa.com\/blog\/2022\/01\/01\/should-i-extend-my-tax-return-2\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Should I Extend my Tax Return?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts\/1642"}],"collection":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/comments?post=1642"}],"version-history":[{"count":2,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts\/1642\/revisions"}],"predecessor-version":[{"id":1644,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts\/1642\/revisions\/1644"}],"wp:attachment":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/media?parent=1642"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/categories?post=1642"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/tags?post=1642"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}