Tax Extension Might Be the Better Choice

This year taxes are due on April 18. If you are going to owe tax for calendar year 2022, make your payment by the due date to avoid penalties. However, it may not be best for everyone to file their taxes by the April deadline.
If you are an employer and you contribute to a SEP IRA or a Simplified Employee Pension, you can make contributions for yourself and employees until October 17. Additionally, depending on your type of business, if you have a solo 401 (k) or SIMPLE IRA, you can fund these until the October extension deadline. Thus, you can lower your tax obligation for the previous year. To take advantage of this, however, you needed to establish your account prior to or during the regular tax year.
Because SEP IRAs have a much higher contribution limit, some small business owners file for an extension to allow them time to contribute to their plan. Because it is usually not clear whether this would be a helpful strategy for you, we recommend discussing this with your tax professional. Tax professionals can estimate, based on the amount of tax you owe, what your penalties would be and what the advantages and disadvantages would be for filing in October.
Should you decide to make contributions for 2022 until October 17 of this year, you should contact your bank to ensure they are aware that these contributions are for the preceding tax year. Your financial institution might require additional documentation.
One of the attractive features of a SEP IRA is the amount of money you can put away for retirement. Contributions to a SEP IRA can be up to 25 percent of your compensation for the year or $61,000 for 2022. This will increase to $66,000 for the tax year 2023. Your tax professional can help determine how much you should consider contributing. Or, if you do not have a SEP IRA, whether it would be best for you to establish one.
Should you have questions regarding filing an extension or SEP IRAs, we welcome you to contact us.
Professional Tax Services is a locally-owned provider serving over 3,500 local residents and businesses. For more information, call 661-259-1967 or visit www.scvprotaxservices.com. Through their complimentary program, they provide unlimited free tax-planning advice to their clients.