If you chose, “You’re both crazy rich,” I thank you kindly but you should really read the blog more… Er, no.
What Romney (R) and I both have in common with more than 10 million taxpayers is that we’re both part of the 1%… that are on extension to file our individual federal income taxes.
I’ve been thinking about this a lot lately because of all of the hubbub surrounding Romney’s tax returns. About a week ago, I posted a letter authored by CPA Ron Cohen concerning whether Sen. Reid’s (D-NV) statements on the Senate floor were legal. In that post, I wrote:
Mitt Romney has balked at releasing his federal income tax returns for 2011 and some years prior. This has raised more than a few eyebrows as well as the question, “What’s he hiding?”
But on Twitter, @ColleenCPA set me straight on one important point: Romney is on extension. I immediately tweeted back that “… I think that Romney’s statements have been more of the ‘I won’t’ variety than ‘I can’t’.” And here’s my huge mea culpa: as a tax professional, I realize that I did exactly the thing that I tell my clients not to do. I made a judgment about a taxpayer’s willingness to file any tax based on filing for an extension. And that’s not okay.
So, politics aside here for a minute and let’s focus on facts. I’m not going to debate whether Romney’s decision to file an extension is meritorious. As a taxpayer, however, he has an absolute right to file for extension. I do it nearly every year. And as I’ve said before, there’s no shame in it.
As your life gets more complicated, your taxes get more complicated. For the most part, when you’re an employee earning a simple wage and maybe renting a space and nothing more, your taxes are easy. You get your form W-2 at the end of January and you’re pretty much done. You have months before Tax Day to sort it out.
But what if you buy a house? Have medical bills? Work for yourself? Adopt a child? Things get more tricky. You have extra paperwork to pull together and that can be time-consuming.
But then, what if you are a shareholder of an S corporation? Own commercial real estate? Have an interest in a pass-through entity, like an LLC or partnership? Find yourself as the beneficiary of a trust or estate? Making a last-minute contribution to a retirement account? Now things are even more tricky. In those situations, you not only have paperwork to pull together but you have to rely on the timelines of other taxpayers. Forms 1099-B, 1099-S, and 1099-MISC (if amounts are reported in boxes 8 or 14) aren’t due to taxpayers until February 15. Schedules K-1 from partnerships and pass-through entities like an LLC, LLP, S corp or other small company, may not even be ready until March 15 or April 15 (depending on the specific entity) – or later, if those companies are on extension.
There are a bunch of reasons why an extension might make sense for a taxpayer. Here’s the thing: the IRS doesn’t care why a taxpayer might be filing late so long as the request for extension is timely filed together with any necessary payments. Remember that an extension is an extension of the time to file and not an extension of time to pay. If you expect to owe at tax time and you’re filing for extension, you should make a payment with your extension request.
Filing for extension generally gives a taxpayer a six-month extension of the original time to file. For 2012, this means that, with an extension, an individual taxpayer has until October 15 to file a return (psst: that’s two months from today).
Also worth mentioning? Statistically, filing for extension doesn’t increase your risk of audit or examination. A good tax professional will tell you that it’s better to file a thoughtful, complete, correct return on extension rather than a rushed, incomplete, incorrect return on time.
We can speculate about the “why?” of Romney’s nondisclosure until the cows come home and for prior years, maybe that’s fair game. But for 2012, he’s absolutely entitled to be on extension – like me and more than 10 million other taxpayers. Let’s not forget that.
