Tax Smart Real Estate Investors

The Truth About Tax Extensions (You’re Probably Doing It Wrong)

The Taxmart REI podcast episode tackles the stigma surrounding tax extensions, explaining that an extension merely postpones the filing deadline to October 15, not the payment deadline, and why many real‑estate investors should consider it. Hosts Nate Sosa and Justin Shore stress that extensions are routine—IRS processes tens of millions annually—and that filing late does not trigger audits. They outline the financial consequences: a 5% per‑month failure‑to‑file penalty (capped at 25%) and a separate 0.5% per‑month failure‑to‑pay penalty if taxes aren’t settled by April 15. Accurate returns, achieved by using the extra time, reduce audit risk more than filing on time. Justin notes, “There’s no data showing extensions increase audit likelihood,” and cites his experience at a Fortune‑500 tax department where extensions were filed every year due to complexity. Nate adds, “Even if you’re owed a refund, the extension doesn’t affect liability; you still must pay any amount due by the original deadline.” For investors, the takeaway is clear: file an extension to avoid the steep filing penalty, make estimated quarterly payments or an extension payment to mitigate the payment penalty, and partner with a tax professional early to gather documentation. This disciplined approach safeguards against costly errors and maximizes tax‑saving opportunities.