October 24, 2024 | By Jessica Goedtel, CFP®
There’s a misconception that tax extensions are a tool for wealthy people. In reality, anyone can file an extension. But extensions are a lifeline for tax preparers.
Tax season is brutal for everyone. There’s a limited time window for you to collect documents, find a preparer or software, and submit everything to your taxing authorities. Who, of course, have almost all this information already and will penalize you when you do something wrong.
Side note: other countries have already automated this process. But I’m not bitter…
Imagine doing this for hundreds of people every year. Then throw in frequent tax law changes that even the IRS can barely follow, let alone the poor human getting paid $250 to prepare the return. It’s no surprise there’s a shortage of accountants. Low pay, high stress, and high entry barriers have taken their toll.
It’s a broken system. Full stop.
How Extensions Can Help
Having more time to file could help alleviate this burden. Hey, that’s what a tax extension does! It’s not a magic bullet though.
First, a primer on how extensions work: you figure out what you are expected to owe, pay it by April 15th, and your returns get extended until October 15th. You don’t get more time to pay, but you get more time to get your tax-paper ducks in a row.
How do you figure out how much you owe? Well, you get those tax-paper ducks in a row. I told you, it’s a broken system. Those numbers don’t have to be exact; you only need that estimate to be more than what you owe. If it’s less, you get penalized.
In accounting land, exactness is where all the pain is. Numbers need to be ticked and tied. Estimates still require work but they give a preparer breathing room. Something that is in short supply in March and April.
Tax Planning Can Help, Too
I provide tax planning and projections for my clients throughout the year. For my tech worker clients, that’s talking through stock option exercises and capital gains from sales. For my sex worker clients, we’re monitoring income throughout the year and making estimated tax payments. By the end of the year, we have a good picture of the tax situation months before the filing deadline.
So cut your tax preparer a break and put your return on extension. It won’t give you more time to pay, but it will give your preparer more time to do a quality job on your taxes. If you think tax planning could give you some breathing room, let’s chat! You can book a free introductory call with me here: Meet with Jessica.
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