March Madness is in full swing. I’m not talking about basketball, but certainly that madness has overtaken office cooler talk everywhere. You should have heard the shouting from my husband when St. John’s went down in the first round, then Texas in the second. He is glued to the TV even as he mourns for his favorites.
But for tax preparers and their clients, March Madness refers to the rush to collect tax information to get individual tax returns filed by (this year) April 18th. Sometime near the end of March, we, like many small firms, simply have to draw the proverbial line in the sand. Clients who bring their information in after that date will most likely be filing an extension. We don’t publicly declare what day that is because it depends on our workload, but clients who have been with us for a while seem to sense that the “deadline” approaches. We get a lot of apologies for “bringing it in so late” as they rush to be on the right side of the line. But is this rushing around really necessary?
Let me go on the record by saying that I’m a fan of the extension. For individuals, the IRS offers an extension of time to file to October 15th. You have to prepare a good estimate of tax owed before you extend to avoid a late payment penalty, but that’s pretty easy to do. My theory is that it doesn’t have to be perfect, just comfortably close, with a bit of reserve. Pay your first quarterly estimate for the next year as an extension payment and penalties for the current year should be kept to a minimum.
You also have to decide on IRA contributions. These have to be made by April 15th to get credit for the previous year. Your deduction may be influenced by your adjusted gross income, so you have to massage the numbers to understand what tax benefits you get. But generally folks know whether they want to make an IRA contribution or not.
One reason that extensions make sense is that passthrough business returns have to be prepared before the owner’s individual returns can be finished. For small business owners, I’d really recommend focusing on getting the business information tied down soon after year end. It is just too difficult to remember what happened if you let this drag out long after year end. By focusing on the business return during the season, the individual return can be prepared soon after the madness passes.
The main reason I see to file an extension is to reduce the panic. More mistakes are made when folks rush. Not all the charitable contributions get summarized. Not all the medical expenses are collected. Business mileage is forgotten. When we used to have to give an “excuse” for filing an extension, the typical reason was “the taxpayer respectfully requests additional time to file in order to collect the information needed for a complete and accurate return.” Extensions are automatic now, but the reason is still valid. Take your time. Collect complete information. File an accurate return. There is really no need for March Madness.