I recommend the following strategy for traders and business owners: Overpay your tax extension on April 15 and apply an overpayment credit toward Q1 current-year estimated taxes. Profitable traders should consider making quarterly estimated tax payments due during the year to avoid underestimated tax penalties. That may come in handy, if the stock market drops in Q2 and Q3 2016. If you did a Roth IRA conversion in 2015, you’ll have six months of additional time to recharacterize (unwind) the conversion. The extension also pushes back the deadline for paying money into qualified retirement plans including a Solo 401(k), SEP IRA and defined benefit plan. It’s like having the stock market results of April 18 a day early on April 17. For example, a large trading gain or loss during the summer of 2016 could affect some decision-making about your 2015 tax return. It may open opportunities for new ideas on tax savings. The additional time helps build tax positions like qualification for trader tax status in 20.
You want to look like you’re going to be successful in the current tax year. It’s a wise strategy for traders to apply overpayment credits toward estimated taxes owed on current-year trading income. Impress the IRS with your patience on overpayment credits and demonstrate you’re not hungry and perhaps overly aggressive to generate tax refunds. I’ve always advised clients to be aggressive but legal with tax-return filings and look conservative with cash (tax money).
I think audit percentages drop after April 18. Try to file your tax return in the summer months, when IRS and state auditor’s are on vacation. You don’t have to wait until the last few days of the extension period like most wealthy taxpayers. 15, 2016 for pass-through entities, including partnership and S-Corp tax returns. Sophisticated and wealthy taxpayers know the real tax deadline is Oct. Learn more in “Reasonable Cause” Requires Extraordinary Circumstances.
#THE DEADLINE TO FILE 2016 TAX EXTENSION MANUAL#
Internal Revenue Manual (IRM 20.1.1.3.1 states that penalties and the interest computed on penalties may be abated if the taxpayer can demonstrate a “reasonable cause” (such as mental illness, medical problems or the death of a spouse) for failing to file or pay. Retaining tax funds as working capital for trading is not reasonable cause. The IRS mentions “reasonable cause” for avoiding late payment and late filing penalties. Even if you had a good reason for not paying on time, you will still owe interest.” You will owe interest on any tax not paid by the regular due date of your return. Do not attach the statement to Form 4868.” Attach a statement to your return fully explaining your reason for filing late. You might not owe the penalty if you have a reasonable explanation for filing late. If your return is more than 60 days late, the minimum penalty is $135 (adjusted for inflation) or the balance of the tax due on your return, whichever is smaller. The penalty is usually 5% of the amount due for each month or part of a month your return is late. A late filing penalty is usually charged if your return is filed after the due date (including extensions). You are considered to have reasonable cause for the period covered by this automatic extension if at least 90% of your actual 2015 tax liability is paid before the regular due date of your return through withholding, estimated tax payments, or payments made with Form 4868. Do not attach the statement to Form 4868. Attach a statement to your return fully explaining the reason.
The late payment penalty will not be charged if you can show reasonable cause for not paying on time. It is charged for each month or part of a month the tax is unpaid. The late payment penalty is usually 1⁄2 of 1% of any tax (other than estimated tax) not paid by April 18, 2016.
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