You should try to avoid filing a tax extension if you can

Shelby Carnahan Andrews is busy this time of year keeping abreast of all the changes the IRS put outs and filing tax returns for clients.

Shelby Carnahan Andrews is busy this time of year keeping abreast of all the changes the IRS put outs and filing tax returns for clients.

An extension is a very important tool during times of disaster, whether personal or courtesy of Mother Nature, but it should not be used to delay responsibilities of paper work as procrastination can be very expensive.
Many people do not realize that an extension does not allow you additional time to pay, just additional time to file your return. After the original tax deadline, penalty and interest start to be assessed.
Now, if you are due a refund, there will be no penalty or interest, but you have only three years to file for your refund or you lose it.

Also, procrastination can be devastating as when our world flooded and some people lost all their documents for tax returns which they had never gotten around to filing. What a nightmare for them to try to get copies – and they may never be able to, which means they will not get all of their deductions they are entitled to.
So how do you avoid an extension? The following are always good practices whether you do your own taxes or use a CPA:
1. Have a folder during the year to drop all tax related documents into. For instance:
a. When you buy a car, copy the registration
b. When you sell stock, drop in the receipt or check stub
c. Receipts for tax-deductible expenses, property taxes, etc.
2. In December, review your docs in the folder and look at last year’s tax return. See what you have in the folder and make a list of what you will be waiting on in January/February based on the previous year’s return.
3. In February, if you are still missing docs, call the people who were supposed to send them.
4. File your taxes as soon as possible after receiving all docs. If you owe, you don’t have to pay until April 15, and even if you can’t pay, you can set up a payment plan and change your withholdings so you stop chasing your taxes.
5. If using a tax advisor, touch base with them during the summer or at least before the year ends to see if tax laws have changed or if your circumstances have changed. This will help to avoid a surprise tax bill and make tax season so much easier.

Remember extensions are expensive, they delay the inevitable and they make you chase your taxes.

Shelby Carnahan Andrews is a CPA and has worked in the accounting/finance field for 25 years. Her bookkeeping services include complete payroll services, tax returns for individuals and businesses, and tax-planning advice. She is also an officially-designated forensic accountant expert witness with experience assisting with high asset divorce and fraud cases. For a free one-hour, no obligation consultation to individuals and business owners to discuss their accounting needs, contact her at shelby@shelbycpa.com, or call 225-243-4980 for an appointment. Carnahan Andrews CPA is a member of the Livingston Parish Chamber of Commerce and is a certified QuickBooks ProAdvisor.