Tax returns are due on April 18th of this year. Have you finished yours? If they're not ready, you may want to apply for a tax extension. CPA Steve Levy joins Jarrod to discuss the good, the bad, and the reasons why extending may make sense.
Announcer:
Hello everyone. Welcome to the Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.
Jarrod Bridgeman:
Hello and welcome to the Millionaire Dentist. I'm your host, Jarrod Bridgeman. Casey is busy at the moment. He's out of town doing a speaking event, and so I will be handling today's stuff. Today I have with me, Steve Levy is known as Pipes around here because of his great singing voice. He's a bit of a renaissance man. He can sing, he can dance you can dance, right?
Steve Levy:
A little bit.
Jarrod Bridgeman:
A little bit. He is a CPA and he's got the letters JD after his name.
Steve Levy:
That's right.
Jarrod Bridgeman:
That's awesome, dude. I have got no letters after my name. I've been looking into-
Steve Levy:
Looking into the letters.
Jarrod Bridgeman:
... easiest way to get a letter. So we'll see.
Steve Levy:
I'll write you one.
Jarrod Bridgeman:
That's right. Thank you. Thank you. Today, I thought I'd bring you in. Taxes are due on the 18th of April this year.
Steve Levy:
Correct.
Jarrod Bridgeman:
I really wanted to talk about tax extensions. Now obviously, we all know the idea of what that means. Can you go through for me what the good and the bad can be for extending your tax deadline?
Steve Levy:
Sure. The first myth I want to dispel is that extensions increase your audit probability, and that's never been proven. It's certainly not announced officially.
Jarrod Bridgeman:
But that's something that people have thought is the case for quite some time.
Steve Levy:
Right. And it adds to fear, oh, I got to get my taxes in right at the deadline or I'm surely going to be audited.
Jarrod Bridgeman:
Okay.
Steve Levy:
And then that's definitely not the case. Now, extensions are... Another myth is that extensions extend the deadline to pay your taxes in.
Jarrod Bridgeman:
So even what I just said in my initial question was wrong?
Steve Levy:
As far as what? The-
Jarrod Bridgeman:
I said the extending of the deadline.
Steve Levy:
There is an extension, but that extends the time to file your returns, but not the time to pay in what you owe.
Jarrod Bridgeman:
Okay.
Steve Levy:
And so oftentimes, if you do need to file an extension, you'll want to pay in what you might think you owe both for federal and state for that whole tax return so that you can minimize penalties and interest that may accrue by paying that amount late. And so, the-
Jarrod Bridgeman:
So if you haven't even started your taxes, let's say, and it's April 17th and I'm going to need to file an extension, you still owe that money the next day, whatever it may be?
Steve Levy:
You're still going to owe it, but you should pay it in and that'll help minimize those penalties and interest. So if you don't pay anything, penalties and interest are going to accrue by the time you actually do file and pay what you owe.
Jarrod Bridgeman:
Is that usually what the biggest mistake you see out there is?
Steve Levy:
Yeah. That people think, okay, I have an extension so I can pay whenever. I can wait forever, wait till October 15th, which is when the extended deadline is. Well, but in the meantime, the meter's running for the IRS both on penalties and interest. Now, if you don't extend... So that's a late paying penalty. There's also a late filing penalty and that's usually a good amount. It could be 20% of what your balance is.
Jarrod Bridgeman:
Wow.
Steve Levy:
So if you don't feel like you're going to make the deadline for filing the April 18th in this year, you better file that extension or that late filing penalty in addition to the late paying penalty is going to come about, so...
Jarrod Bridgeman:
When filing for an extension, do you have to show proof as to why you're wanting to extend or is it just a simple form?
Steve Levy:
No, it's an automatic situation. And also if you're electronically filing that, you get a confirmation pretty immediately as to the acceptance of it. There's also like let's say there's an issue with your extension, it gets rejected. Now, don't panic. You do have time to correct... A few days to correct whatever the error was and go ahead and try to file that extension as well. That also applies to a tax return. Let's say you were wanting desperately to file the return by the deadline of April 18th and you do it and you get an error saying, sorry, this was rejected. Well, it doesn't mean you haven't filed it on time. You still get... The IRS gives a few days to correct that.
Jarrod Bridgeman:
Okay.
Steve Levy:
And it's still considered timely filing.
Jarrod Bridgeman:
So they still acknowledge the fact that you attempted to?
Steve Levy:
You did. Right.
Jarrod Bridgeman:
Okay.
Steve Levy:
Absolutely.
Jarrod Bridgeman:
Besides maybe just not having it done in time, are there any benefits to applying for an extension?
Steve Levy:
Well, so you want your return to be as accurate as possible. And if there's things that haven't come in yet, like let's say sometimes brokerage statements are often late from various brokerage companies and they haven't sent it to you yet. So you would probably want to wait to see what that looks like before you actually file your return. And so that would be a reason for extending. Let's say your business return isn't done yet and there's certain things you have to figure out before you file that return. So you may have not even gotten a K-1 from that business to report on your personal return, that's another reason to extend.
Jarrod Bridgeman:
So just personal tax situation instead of let's say business if you're waiting on other people?
Steve Levy:
Yeah.
Jarrod Bridgeman:
Okay.
Steve Levy:
That's definitely the case. K-1 is a common thing, the brokerage statements and... Those are the main ones there.
Jarrod Bridgeman:
Steve, since you're our director of accounting and you deal a lot with our clients and their taxes, when was the last time we had to file an extension for anybody that we work with?
Steve Levy:
Well, the reason we sometimes have to do that is we're waiting on outside information.
Jarrod Bridgeman:
Okay. But it's never been just because you didn't feel like coming in that day?
Steve Levy:
No.
Jarrod Bridgeman:
No.
Steve Levy:
I would never do that. No. Because we have a lot of information in-house that if we're able to file it on time, then we're going to go ahead and do that. Now ,there may still be some outside information or information we're needing even for the business returns.
Jarrod Bridgeman:
Okay.
Steve Levy:
There's still some unresolved things.
Jarrod Bridgeman:
But those will be things out of our control?
Steve Levy:
Yeah, we just haven't gotten all the information in to prepare it, and so... But we certainly want... And the reason we like to file returns on time, both the corporate and the personal is because it helps for planning for the next year. It helps, okay, this is what happened, we're sure as far as the results last year, and we can plan around what those prior year results are. It just helps for cashflow planning and figuring out what their next year is going to be.
Jarrod Bridgeman:
Do you have any tips on how to avoid having to file an extension?
Steve Levy:
Well, if you feel... So the biggest thing is you know what you got as far as tax documents last year, like for 2021.
Jarrod Bridgeman:
Right.
Steve Levy:
If you got those last year and you haven't gotten those for 2022 yet on a real timely basis, because usually, the last tax document that you're supposed to receive comes mid-February. And if you haven't gotten any of that, then it's time to be asking those sources, where's my tax form? Now, a lot of things, those tax documents can be obtained online. Let's say you've got an online brokerage and a lot of those tax documents are available online. So if you haven't gotten it, go search it out for that tax document online. Also like W-2s, those are available online often as well.
Jarrod Bridgeman:
Would it be also a matter of throughout the year, just keeping thorough records?
Steve Levy:
Yeah, that's good as well.
Jarrod Bridgeman:
Instead of waiting till the end of the year and panicking?
Steve Levy:
Yeah, especially if you've got outside activities, whatever it is that you're tracking. Track that throughout the year as opposed to, okay, time to gather receipts up and income up and okay, what are-
Jarrod Bridgeman:
Just pulling out the box full of receipts.
Steve Levy:
Exactly.
Jarrod Bridgeman:
Yeah.
Steve Levy:
Yeah. That's not desired by anyone, especially us. So yeah, track things. If you got it in the prior tax year, you're probably going to get it this current tax year. So there's not a big scramble to try to get that before the deadline.
Jarrod Bridgeman:
Now, in terms of this is something that we make sure we help eliminate with our clients, but if a dentist is out there, practice owner is out there and they receive what we call a tax surprise, which would be plus or minus 10,000.
Steve Levy:
Sure.
Jarrod Bridgeman:
Either $10,000 refund or a $10,000 not fine, what you owe. Now, obviously the return money getting back to you feels good, but that large amount of money that could have been I'm assuming better placed somewhere else throughout the year. But what is something that you would recommend to help minimize a large tax surprise?
Steve Levy:
Well, the biggest thing is to monitor the income that doesn't have withholdings throughout the year. For instance, we, each quarter, will evaluate what the business income is for up to that year to date. And business income, you can't pay taxes in through withholding typically. That profit is done through estimated tax payments. So that's why we really stress what does each quarter look like? What does your year to date look like through May? What does it look like through August or September and certainly through the end of the year. So the biggest tax surprise is I didn't pay enough and estimated taxes both federal and state on my profit. So profit is kind of the... And it's a moving target.
Your profit in the first quarter may not look like what your profit is at at the end of the year, but that's something to monitor and make sure that you're paying just the right amount of taxes-
Jarrod Bridgeman:
As close as you can get.
Steve Levy:
Yeah, as close as you can get to get within that $10,000 mark. And it's not going to be exact, and sometimes like we've seen, some crazy profit and loss years recently for various reasons, but monitor that. We monitor that for our clients and we try to estimate what their tax estimates are going to be and what their eventual tax return is going to be. We kind of have a good feel of what even their tax return is going to look like throughout the year.
Jarrod Bridgeman:
All right, Steve, I really appreciate you stopping in today and giving us some vital information on extensions. Is there anything else you felt like I left out or didn't ask you?
Steve Levy:
Well, there's a lot of specials out there on for restaurants and things on tax day, so yeah, go ahead and scoop those up. There's... That's a...
Jarrod Bridgeman:
Lot of online sales too.
Steve Levy:
Online sales.
Jarrod Bridgeman:
Yeah.
Steve Levy:
So jump on those.
Jarrod Bridgeman:
You got anything you're keeping an eye on?
Steve Levy:
Maybe some restaurant stuff.
Jarrod Bridgeman:
Okay. All right.
Steve Levy:
So...
Jarrod Bridgeman:
All right. Very cool. All right, Steve, I appreciate you stopping by and helping me out here. Everybody, if you want to learn more about what we can do for you or just want to come and talk to somebody, visit us at any events we're going to be at. Don't forget, we're going to be in El Segundo in California on May 12th doing Topgolf there. It's worth CE credits, as well as free food and drink and golfing. Go to fourquadrantsadvisory.com/events and check us out. Thanks Steve.
Steve Levy:
Thanks Jarrod.
Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year, they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.
