reasons you might want to file an extension for your taxes

Tax day is just around the corner and for many investors, panic can set in.  Maybe all your tax documents have not arrived yet, maybe someone made a mistake.  Maybe you can’t find the receipt for that large improvement or any number of other hold ups.
 
Don’t worry, just file a tax return extension!  The IRS realizes that not everyone has a quick and easy return and if you are a real estate investor, your return is probably not “quick and easy”.  If you feel like you are rushing to get everything together and feel the stress of that rush, it might be a good idea to file an extension.
 
NOTE:  Extension are only for additional time to file.  All taxes due are still due on the actual due date.  The best way to get the tax paid on time is to estimate what you owe.  Contact your CPA and ask them to prepare an extension payment calculation for you using the information you have received so far.  If you are not sure what your profit or loss will be from your rental properties, use an estimate along with the rest of your tax documents.  If your extension payment ends up being more than you owe, then you can have the excess refunded when you file your returns.
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HERE ARE A FEW REASONS WHY IT MAY BE IN YOUR BEST INTEREST TO FILE AN EXTENSION:
 

• No Penalties for Filing Extension

Extensions are legally allowed by the IRS, so use them to your benefit!  As long as taxes are estimated and paid before the due date, you can extend your returns, penalty-free.  Most states also accept the federal extension, so depending on where you need to file, one extension may extend to the state you need.  Extending your Partnership or S Corporation gives you until September 15th and extending your personal return gives you until October 15th.  Time to get everything together without as much rush and stress!
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• Less Chance for Mistakes

This is the advantage I like the best.  Many times, tax documents arrive late.  You may receive documents just days before you need to file your personal returns.  You may receive a “corrected form” just days before Tax Day. 
 
If you have a new investment, you may not be sure what documents you are supposed to receive.  If you miss a document, the error is fixable, but this will probably be at an additional cost to you. 
 
Then there is increased risk that your CPA or tax preparer will make a mistake in the RUSH of getting the huge volume of tax returns prepared in a short period of time.  Most tax preparers are working LONG hours during tax season, so that increases the likelihood of a mistake, as well as added IRS audit risk.  So why not extend and make sure you don’t miss anything and give your preparer more time to devote to your taxes?

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• Time is on Your Side

There is much work required to get your tax documents ready to hand over to your CPA, especially if you are a real estate investor – organizing your receipts, reviewing your books and making sure that everything is accounted for in terms of expenses.  Depending on how many activities, properties and investments you have, it can take a significant amount of time.  Why not give yourself a little extra time?
 
Extending your returns will give you additional time to ensure your taxes are done correctly and that ALL of your tax deductions are captured and you receive the maximum refund possible!

• Power of the Roth IRA

If you made a Roth IRA conversion in 2016, you have until the date you file your 2016 taxes to confirm or undo you Roth conversion.  This give you until October 15th to monitor your investment performance during 2017 and determine whether or not the Roth conversion was beneficial to you.  That is quite an advantage! 
 
If your investments didn’t grow as well as you expected, you are able to undo the conversion and put the funds back in a traditional IRA.  After your taxes are filed, this perk is gone.

• Retirement Planning

Traditional and Roth IRA contributions can only be made until April 15th, but some plans can be extended to September or October.  If you plan on making any retirement contributions to accounts like SEP IRAs, 401Ks or SIMPLE IRAs to reduce your taxes, you may have until the date you file your tax returns to make those contributions and still deduct it for the 2016 tax year.  This may help you reduce your tax liability and give you additional time to gather funds for the contribution.

• Multi-Year Planning

You have more time for planning!  If you file your taxes later in the year, then you have a better idea of where you stand for 2017.  There may be opportunities to shift items between tax years to get the best tax savings.
 
Potential strategies include changing accounting methods, making elections to carry-forward or carry-back certain losses or taking advantage of the bonus depreciation or cost segregation for real estate.  With a better idea of how the following year will turn out and what new tax laws might be, you can make better informed decisions.

As always, consult with your CPA or tax advisor for professional advice on your particular situation!

Don't find yourself here:  

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Plan ahead and enjoy life!