This episode marks the launch of Practical Tax, Moskowitz LLP’s new podcast. Tax attorneys Steve Moskowitz and Liz Prehn discuss the upcoming tax deadline (April 15) and one action you can take if you’re not prepared to meet it – filing an extension to push your deadline to October 15. Listen to the podcast to learn more!
Speaker 1: 00:00 Every day I look at the calendar, and it’s one day closer to April 15th, and I’m not ready. I’m not even close to ready. I don’t know what to do.
Speaker 2: 00:07 You’re listening to Practical Tax, with tax attorney Steve Moskowitz.
Steve Moskowitz: 00:11 Hi, I’m tax attorney Steve Moskowitz with longtime Moskowitz tax attorney, Liz Prehn. April 15th is almost here, and you’re just not ready. We understand; we see it all the time. Liz, what are some ways that we can help?
Liz Prehn: 00:25 Well, I think it’s important to know your rights. As a tax payer, you can file an extension to get your books together, if there’s some adjustments that need to be reviewed by your tax attorney, that’s very common. There’s a few rules that go with the extension, which is it’s an extension of time to file the return, but not an extension of time to pay.
Liz Prehn: 00:44 What we do, in our practice, is we take a look with the client, their books, their records, what the issues are, try to come up with an estimate, there’s a rule of thumb, 110%. Oftentimes, people are coming to a tax attorney because an anomaly happened, something happened. They sold some properties, they came into some money, or there was a theft, there was something that happened that year, which was rare for them. They’re looking for advice on what to do. That usually puts us in the position where 110% doesn’t quite meet the muster. Nobody wants to be giving the government an interest free loan, either.
Liz Prehn: 01:20 What we do, then, is sit down, try to come up with the best estimate, file the extension, that gives you additional time to get the taxes prepared and get the positions to find, and then file in October.
Steve Moskowitz: 01:24 And it’s very important to file that extension by the due date, because if you don’t, the penalty is 5% a month, or 25% a year. That means, if you came in and you owed $100,000, you would owe an extra $25,000, $125,000 in my example, just because you didn’t file the extension. It’s so vitally important. Everybody should go ahead and file an extension that’s not filing by the due date. Some people think they’ll do it later. No, really important to do it on or before the due date.
Liz Prehn: 02:01 I think so. I think our clients benefit just getting it done, having the piece of mind that it’s filed. There is a theory that if they’re going to get a refund, it’s no foul no harm.
Steve Moskowitz: 02:11 Here’s how the whole extension process works, it changes your due date from April 15th till October 15th. However, from experience, please don’t wait until October 14th to start putting your records together. And if you do that, what happens is so many people cheat themselves because they don’t have enough time to get all those deductions. This way, if you go on extension, that gives you half a year. You don’t have to work on it every day, but don’t put it off.
Steve Moskowitz: 02:35 The other thing too is, it’s important, if you work on it early, sometimes you need to get something from a third party. If you call them up on October 14th, he or she’s probably not going to be able to give it to you in time. You have plenty of time, but start working on it now.
Liz Prehn: 02:49 We have a client, great client, fun business, really is great at what they do, but they’re not great with their paperwork. There’s three different businesses, which actually works out well for them, just by virtue of how the entities are organized, but the books were a mess. They came in, and the principal of the businesses basically said, “Well, I don’t really file. I haven’t filed in years. I don’t really file, I’ll just wait and see. Just do what you can do.” Which, we get a lot. We get that a lot. That’s very human, and it’s a reality of trying to do business and keep up with their paperwork and being good at what you do, but maybe not with paperwork.
Liz Prehn: 03:26 After talking to Steve, of course Steve is very methodical, and he’s got a process, and it’s a proven process. He said, “Well, we’re going to take over. And what we do is we file extensions, and we’re going to work through this.” We just got him on a monthly program where we just met twice a month for three or four months, got all the back books fixed up, was able to file his current year return on time, by that October, what ultimately ended up being September and October deadlines for him. Got that done in a way that saved him a lot of money. Penalties are late, and it’s just so easy to let it snowball, and be lax with it. It’s really just free money for the government.
Steve Moskowitz: 04:04 Think of the tax return like the Olympics. That’s what’s televised, that’s what everybody looks at, you see people running around the track. It takes a relatively short period of time. The real work in the Olympics is not the actual game, it’s the four years of preparation for the game. That’s exactly what Liz is talking about. The more preparation you do, the better result that you can get.
Liz Prehn: 04:24 If you have a simple return and you’re not ready to file, or if you have a complex return and you’re not ready to file, I think bottom line, file that extension. It’s just going to save you penalties. You can do it through your attorney, your accountant, you can do it online at the IRS.gov.
Liz Prehn: 04:38 Big picture that I think people sometimes miss, most often miss, sadly, is that it’s an extension to file the return, it’s not an extension to pay.