Transcription
You may be scared to death right now that the tax deadline is around the corner and if you don't file your tax return in time, you're going to go to jail. And if you file an extension, heaven forbid, you might be getting audited. Those are myths, and it couldn't be further from the truth.
My name is Mark J. Kohler. I'm a CPA, attorney, bestselling author. I've been in the tax and legal industry for over 25 years. I've seen it all. I've been across the table from the IRS and an audit saving clients. I've been in tax court and my accounting firm has filed thousands of tax returns. I'm going to tell you the truth and it's going to be a lifeline and save you so much emotional heartache and [music] even money.
Now, what I'm going to explain in this video is first how an extension can actually reduce your chances of an audit, what the purpose of an extension is, why you may want to file one, and how it can save you money. Let's get started.
Now, as you first heard me say, many people believe that filing an extension is going to increase their audit risk. What would you think if I actually told you you reduce your chances of having the IRS look at your tax return when you file an extension? This year, it's estimated that approximately 160 million Americans will file a 1040 tax return, and about 10% of them will file an extension. About 15 to 16 million. Now, when you file an extension, you're given till October 15th to actually file the paperwork. Now, you need to send in a deposit of what you think you're going to owe. We'll come to that later. But you have six more months to even file your tax return.
Now, think about it. By April 15th, over 145 million Americans have already filed their 1040 tax return. They're already in the system. And the IRS service centers, these regional offices are assigning audits based on the computer system identifying whose tax returns need to be looked at. Now, what's interesting is that by the summer, they're maxed out. And statistics show that they don't go out and assign more audits in the fall unless it's an egregious situation that pops up in their computer system. So all those people that [music] went through the cattle guard before you are the ones getting taken care of and audited before your tax return even shows up. Year after year, the audit ratio of tax returns filed in the last 3 months before the deadline are audited sometimes 5 to 10 times less. So, it behooves you to come later to the party and not [music] get noticed.
Now, it doesn't mean you cheat on your tax return or you get more aggressive, but I want you to just relax. So many people get stressed out about this tax deadline on April 15th. They force their accountants to file prematurely. They put in bad numbers. They don't take the time to do a good job. And they're frankly freaking out that they're going to miss the deadline. People, I have to say it again. you actually reduce your chances [music] of having the IRS look at your tax return by taking your time and doing a better job.
Now, I want to make an important point here before we get into additional reasons as to why to do this and how to file the actual extension. If you've got a day job with a W2 and they've been withholding and there's a good chance you're going to get a refund like last year, [music] then move quickly. Let's get your tax return filed. Let's get that refund. Why continue to give the IRS an interest free loan?
But again, another interesting statistical fact is that 75% of those people filing an extension are business owners. Now, if you even had a side hustle or a side gig last year, and it's estimated over 50 million Americans now have a 1099 from a side gig, well, that's a small business. You're filing a schedule C. A schedule C is in Charlie. You're now in that bucket of looking for additional writeoffs. So, if 75% or more of the people filing an extension have a small business, do you think it might behoove them [music] to take additional time and dig up more write-offs?
Now, you see where I'm going here. This could very well be you and one of the primary reasons I want you to file an extension. First of all, of course, I don't want you to feel rushed and stressed out, have a little more emotional balance during this time. But if you have that small business income, this is the perfect time to go and dig [music] up any additional write- offs you can think of. That's what it's all about, people. Keeping more [music] of your money in your pocket and giving less to the IRS.
Now, let's talk about another reason why filing an extension may make sense. How's your accountant? Do you have [music] a tax advisor, or do you just have a person that plugs in numbers? or have you given up on the whole freaking industry and just gone to Turboax because you don't get any decent advice when you file your return. If you're in that situation by filing an extension, you can take the time to interview and find a real tax advisor.
Now, I've created a program called the Main Street Certified Tax Pro Network and have trained over a thousand accountants that speak Mark Coler. And down below in the description, you can go to the Main Street Tax Pro Network [music] and schedule a discovery call, interview one of these accountants. Now, if you file an extension, you can take the time to go get your documents together, dig up more write-offs, and have a constructive tax planning session [music] with an adviser that knows what you're doing.
Now, let's talk about how to file an extension. Now, the form to use for a 1040 tax return, which includes your schedule C as in Charlie if you're a small business or schedule E as an Echo if you have rental property, you're going to file form 4868. You can do it online, easy. You could start out even at IRS.gov. You don't have to pay any software company to do this. You can do it yourself. Just make sure that it's completed before April 15th.
Now, there's an important note in this process. By filing an extension, it's [music] not an extension to pay. You need to send in what you think you owe by April 15th with that form 48.68 [music] either by check or online. Now, you don't have to send in the exact number, but you've got to send in an an amount that hits a certain safe harbor. So, there's no penalty. You will owe the IRS some interest because of course they want interest on their money that you owe them after April 15th. Heaven forbid they pay you interest on the money you gave them all year. You just get a refund. Thank you. But this is an important point that cannot be overlooked because I don't want you to get a penalty when you go to file in August or September and then you're like, "Hey, Mark Kohler said I can do this and there's no problem." Yeah, there's no problem. [music] And the interest is cheaper than a credit card, but you want to try to avoid the late [music] payment penalty. And the late payment penalty is a half a percent per [music] month or part thereof on the unpaid balance after April 15th. Now, that's if you don't hit the safe harbor. We'll come back to that.
So, let's say you owe the IRS $1,000 and you end up filing your tax return and paying that $1,000 in July. Well, you're going to owe them a penalty of [music] 2% because it's a half a percent per month or part thereof. So, we got to count the half of April, [music] May, June, and the part of July until you actually filed. That's 2%. So, you owe the IRS $1,000. What's your penalty? Yeah, [music] $20. [laughter] I think it's going to be okay. And that again allowed you to go dig up more write offs and probably save a lot more than $20. So that's the penalty if you don't get the safe harbor.
How do I avoid the penalty alto together? Even though we know it's not the end of the world, you want to estimate what you think you're going to owe. If you do the math and you're like, "Oh, I made this much in my small business. I had this much withheld at work. I think I'm going to owe the IRS around $1,000." Okay, send them 1,100 bucks just to be safe. Okay, file your extension. Send in $1,100 and then when you go file in July, you'll get a refund of that $100. Remember, you still owed $1,000, but you estimated a little high to be safe. You send them $1,100. And so in July when you file, the,000 will come off of your deposit and you get a $100 refund. Boom, bada bang. No penalty.
Now, the safe harbor is you can look at last year as to what you owed in total tax last year. So, you go to your tax return and look at that number, not what your refund was, but what you paid the IRS last year in taxes. If you send in at least 100% of that, including the deposits you may have already made through your paycheck or whatever, if you send in at least 100%, but you owe more, there's no penalty. You hit the safe harbor. you gave the IRS at least 100% of what you owed the year before.
Now, if you make more than 150 grand AGI, adjusted gross income, your safe harbor is 110%. So, look at what you owed last year, calculate 110% of that, subtract the withholdings you've already had throughout last year on your paycheck or whatever, and then send that difference in. You avoid the penalty all together again. And it gives you the chance to file a better tax return and save far more in excess than what the penalty was.
Now, I want to circle back and just talk about the interest, too, because if you owe the IRS money and you don't send it in on April 15th, you have that penalty calculation. Well, the IRS also wants interest on their money. So, let's stick with that $1,000 example. You owe the IRS $1,000. You file your extension, but they're still waiting for their money. We covered the penalty at a half a% per month. Now, the interest amount changes quarterly based on IRS notices, but we already know for this year it's set at approximately 7%. So, it's about a half a percent a month, just like the penalty issue. So, if I don't pay the IRS that $1,000 until July, just like our prior example, I might owe the IRS interest of around $30. So, interest approximately $30, 7% peranom, the penalty of half a% per month, approximately $20. I'm out 50 bucks to pay the IRS the $1,000 in July and take the time to find a better accountant and find more write-offs for my tax return and not stress out in freaking [music] April. You're welcome. [laughter]
Now, let's digress for a moment. What do you do during this time period to sharpen the pencil, if you will, again, and look for additional write-offs? Let me give you three tips.
Number one, go look at all your financial accounts. Look for any expense that could be related to your business. Go to credit cards. Go to your Apple Pay. Go to Venmo. Go to Zel. Go to PayPal. Go to any method that you use to pay bills or buy things. Every expense for your business does not have to go through your business account. If it's legitimately used in your business, we just need to be able to show what you bought, how much it was, and write it down. Put it into the list of expenses for your business. Yes, it's important to try to keep receipts when you can, but if you don't have a receipt, it doesn't mean you don't count it. Put it in the mix and let's go for it.
Number two, I know it sounds maybe a little trivial, but I love the home office deduction. And don't believe any freaking account that says it's a high-risisk item. It's not. There's a simplified method and an actual expense method and even an administrative exception if you have another office across town. So, there's a way to come up with that home office deduction. And here's my point. Yeah, maybe it's only 500 bucks, $1,000, or even $1,500 is the maximum amount under the simplified method. But what it does is unlock my third tip, [music] the auto deduction, because I want to come over here to the auto deduction and look at all the mileage I may have been able to write off during the year, running errands for my business, going to a meeting, going to a conference, picking up supplies, going to the Apple store, Home Depot, Best Buy, and think about mileage. If I want to track my business mileage, I have to have a beginning and an end, right? I mean, it's just logical. I can't say, "Oh, I had this many miles." If it's this nebulous, well, where did you start from? The beauty of the home office write off is not the actual amount of the home office. It's the fact that it's the starting point for all the mileage I want to take in my business. [music]
And see, those are just three tips you may have not thought about before and three expenses that you may have not taken full advantage of in the past. This is what this extra time gives you. So, after you file the extension, you start maybe getting a little more education on the topic. Maybe you go out and find that better tax advisor. And now you're moving the needle. That's the beauty of this extra time.
Now, in summary, I hope you're already pretty excited about this message. Please consider filing an extension. Don't worry about it. In fact, your chances of an audit go down. Don't forget to send in a deposit if you choose to do so. It'll help minimize a little interest and penalty. I want you to study up and see some of my other content on better write-offs for your tax return. And let's get to the network and find a better accountant to help you sharpen that pencil. But in the end, you should feel empowered. You should not feel forced or pressured to move too quickly. This time of year is not the [music] time to be trying to save money on your tax return. We're looking in the rearview mirror. 2025 is over and tax planning really should have happened last year. And I'm sure you're feeling that way. Our busiest time at our firm is in the third and fourth quarter. We're scrambling in November and December to get all the write-offs in before the buzzer rings. [music]
Please take the time to get a tax strategy session scheduled with one of our tax lawyers at KKOS Lawyers. We help small business owners. It's affordable and we'd love to give you a trifecta and a tax strategy plan to save [music] more money. It does not need to cost 10 or 20 grand or more to get a good tax strategy plan put together to help you better live the American dream. Thanks for [music] watching. My name is Mark J. Coler. Please give it a like and a subscribe and share this video with someone else that your family or friend network that [music] you know it would help. I'll see you next week for another video. And don't give up. [music] We're all in this together.