Finding a tax strategy that works the best can seem as complicated as choosing a winning NCAA bracket. In fact, ESPN experts and their “bracketology” often claim that the unconventional wisdom can be the secret to success and saving your precious $5 entry fee into the office pool.
But do you have a tax strategy for this March and saving thousands on your tax return? What’s your “Taxology” for super savings?
Now let’s be honest. We all know that tax planning takes place in November and December.
Instead of writing an article on a bunch of last minute pseudo tax tips that are simply a feeble attempt at making us feel better for putting off what we should have done last year, let’s call a spade a spade.
You know what this is about: filing an extension
Now here’s why filing an extension could be your sleeper ‘Taxology’ strategy to winning on your tax return.
Filing an extension is the equivalent to taking a timeout right before the final shot of a game. It gives you a chance to dig up all the expenses you can and reevaluate how aggressive you want to be on your tax return.
Being too aggressive and “taking a bad shot” could risk an audit. Instead, use this opportunity to give yourself the chance to uncover real write-offs you may be missing out on. Let’s face it, many CPAs and taxpayers are far too conservative and leave legitimate tax deductions you are entitled to on the table and cost you thousands.
Second, filing an extension is as easy as raising your hands in a game and waving to the referee. By filing the extension, you buy time until October 15th to send in your final tax return. In order to make it happen, you simply file Form 4868 electronically or mail it in. (However, keep in mind, it’s important you estimate how much you think you in tax and send it in with your extension. You can always get a refund later and it will prevent any penalties or interest).
Third, don’t be afraid to file an extension. Millions of American file extensions every year and there is nothing wrong with it. In fact, various statistics over the years have shown that your chances of an audit do NOT increase by extending.
Finally, here is the “why” to get your juices flowing. Just as in a basketball game with seconds to go, you should pull out a pen and paper and consider all the different strategies or write-offs you could be missing if you rush into filing. Here’s just a few to think about:
Travel-related expenses. Arguably one of the most underutilized tax deductions by small business owners today. Unlike meals and entertainment that are limited by 50%, travel expenses are 100% deductible. These include airfare, hotel, rental cars, valet, taxi, trains, tolls, etc… Consider all of your travels last year that may have involved business in some way, shape or form. You can deduct that from your taxes!
Auto Deductions. This is related to expenses for your car or truck used in your business. There are two main options: mileage or actual expenses. Statistics show that 90% of small business owners utilize the mileage method, which was about 55.5 cents per mile in 2012. Surprisingly, many taxpayers avoid claiming their true mileage because they are afraid of an audit. Though you should do your best to keep a written record, utilizing an estimate and taking the deduction will work if you haven’t been extremely detailed .
Dining and Entertainment. Another underutilized expense by small business owners and should be a healthy line item on your tax return. Please make sure you consider all of your meals last year where you discussed business with a partner, or a potential client, vendor or strategic alliance.
Office Supplies and Technology Every small business owner is regularly buying supplies and upgrading their phone, computers, and digital reading devices. Don’t forget that when you have a small business, the majority of these items can be fully deducted.
Technology and Telephone. Recent case law and IRS rulings allow business owners to write-off 100% of their cell phone expenses, so long as they have at least one dedicated home phone line. Make sure to include the cell phones of your family members that work in the business alongside you and need a cell phone for their legitimate role in the business.
Consider a SEP contribution before filing if you must. While a 401k is FAR better for the small business owner, the SEP could be considered if you failed to implement the 401k back in December. However, by filing an extension you ‘buy time’ to consider a contribution and then make the contribution. The contribution amount is 25% of your net income or up to $50,000, whichever is less.
Bottom line: be confident if and when you file an extension. If you have a reasonable argument for taking a deduction and miss, the worse the IRS will do is disallow it. Take the time to dig up those expenses on credit card statements, bank statements, receipts, or anything you can find. Don’t shy away from throwing them on your return.