ļ»æAll right, we have just passed the April 15th deadline for the 2023 tax returns. I'm going to break down some of the good, the bad, and the ugly of extensions, like why we need them, why we have them, when it makes sense to do them, and some of the catches, like where people, if you don't file an extension, some issues that you could run into, like one if you don't file the extension, but another one if you owe, what could happen if you owe when you do an extension. So I'll start off with the good.
So what is good about filing an extension? Well, one, it gives you more time to file without penalties or more time to file without a late filing penalty. And I'm going to get into different penalties later, but sometimes you just need more time to file. Like if your records aren't ready, like if you're a business owner, investor, if you're actually, if you've got bookkeeping, you need to do or rental properties, if you just need more time to put that together, an extension can give you more time to do that.
And I do not recommend filing. If you have incomplete records or books that are a mess, I don't recommend filing and then trying to amend it later because amendments just take a long time. Sometimes you have to do an amendment.
It doesn't cause more, like more IRS scrutiny or increase your audit risk, but it's just a pain down the road. So sometimes it makes sense to just wait. That's the good part of it.
And sometimes you're just like, your records are good, but you're waiting on someone else. Like you're waiting on a K-1, which is when you put money into an investment and you're a part of that ownership, like you're a part owner of that, say a partnership. They send you a K-1, which is like the net impact on you as the personal investor.
It's the net impact on you from that investment. And sometimes you're just waiting on that. So it's not up to you.
You're just waiting on more K-1s. My favorite part about extensions is if this next part is to implement different tax strategies, some tax strategies, some tax savings, things that you can do or deductions to come up with. Some of them can be done retroactively.
And so if you don't know about them, you need time to, to learn about them. Like for example, one of them is like a cost segregation with real estate. You can do a cost segregation after the end of the year, accelerate depreciation on real estate, or you can accelerate depreciation like for your business, or there's, there's just other things that you can do retroactively.
So sometimes you just need more time to figure that out and decide whether or not it makes sense. So I'm going to go into the bad. So those are the good things about extensions.
The bad is if, or this is, it's not horrible, but one of the bad things about it is if you are waiting on a refund, like you're just wait, you're just going to be waiting longer on a refund. So if you had everything say February 1st, each year, and you could file and you're waiting on a refund, you're going to have to wait an extra few months. Like if you're ready, you might as well just file.
If you're ready to have everything and you're getting a refund, you might as well just file. If you do an extension, if you're procrastinating and you just want to kick it down the road and file in October, you can do that. There's not going to be penalties and you can still file for your extension at that time.
But the bad part of it is you're just going to be waiting longer for your refund. And again, it's not horrible, but and now the ugly, this, this is the part, this is, this is what catches people. This is what slips people up.
And this is what they get surprised about. This is what, this is the ugly part of extensions that they do not like. I don't like it either, but we, we try to explain it a lot.
And all the time with people, you've got to remember when you're filing an extension, you do not, it does not give you any more time to pay your taxes, which is so weird, right? It's like you're filing an extension. You're like, yeah, I don't know what I owe yet. So how am I going to pay my tax of it? I don't know what I, if I don't know what I owe yet.
And that's part one of the problems with our tax system is with these extensions, because that extension does give you more time to file and you don't have late filing penalties, but it doesn't give you any more time to pay. So taxes do April 15th, even with an extension, they're still do April 15th. So what happens is people do an extension.
They're like, we're good. We feel good. We have an extension, an extension.
We're going to look at it in September or October. So then when they file in October, just as an example, say they owe $10,000 a tax. Well, they had an extension.
So they were on time and they think they're covered, but they file in October. Month later, the IRS sends them a notice, says, you have a penalty. You owed us $10,000 a tax.
And they're thinking, they're like, we paid in October before we filed. But the way the IRS sees it is that they paid six months late. Remember it's a late filing penalty, which they didn't have, but this is a late payment penalty, which they do have.
It's six months late and the IRS can, their, their interest rate on late, like late payments is about 8%. So they might owe, if it's six months late, you might owe like 4% of that total of, of the 10,000 bucks. So it's not huge, but sometimes there are pretty, sometimes there are really big tax payments that people owe.
And the larger the tax amount that you owe, cause all these penalties are based on how much you owe, the larger the penalty that you have. The larger tax payment you have, the larger the penalty could be. So just there's the good, the bad and the ugly of extensions.
If you have any specific questions or details of it, feel free to just go to the wealth game.io and submit a question on there and we'll cover it on one of the next calls or we'll cover it in one of the frequently asked question videos. But yeah, have, yeah, have fun with extensions. We just finished this tax season, so we're happy to have it done, but we're just going to continue pushing through all the other tax returns that people have been waiting on.
Cause if you are getting a refund, we want to make sure to get that out to you as soon as possible, but I hope, I hope you have a good, good rest of the week.
