Multiple Extensions Not Risky

As I have discussed ad infinitum, there are several benefits to filing extensions and sending in the tax returns later than April 15. I just learned last night that there is someone claming that if you do this too many years in a row, IRS will take notice and target you for an audit.

I can state unequivocally that this just isn’t true. I have scores of clients for whom we have been filing extensions every year for well over 20 years running. We have never experienced any IRS problems with any of these people. Likewise, I have never heard of this being a problem from anyone else. That sounds like one of those urban legends, such as the one that claims using the IRS provided label triggers audits. Not true.

Because of my heavy work schedule this time of year, there have only been a few times in the past 25 years that I have filed my own tax return by April 15. I have only been selected for audit by IRS twice, and neither had anything to do with the extensions. The first time was due to a vengeful ex-wife who was trying to extort money from me. The second one was a few years ago because of some hard hitting articles I wrote about the Clinton organized crime family in my newsletter.

KMK

New IRA Limits Are For 2002 Tax Returns

A very common question I have been receiving deals with the new higher limits of $3,000 per person for traditional and Roth IRA contributions. Many people are under the assumption that they are effective for the 2001 tax returns which we are currently working on. That is not the case. The $3,000 limit is effective for 2002, 2003 and 2004 tax returns.

However, while you may not be able to deduct the new higher amount until next filing season, you can still take advantage of the new higher limit now. 2002 IRA money can be deposited any time between January 1, 2002 and April 15, 2003. The sooner you can afford to put that money in, the sooner it will start earning tax deferred or tax free income.

Under the existing law, which we all know is subject to change at the whim of our rulers in DC, the limits for traditional and Roth IRAs will rise to $4,000 for the 2005 through 2007 tax years. It will be $5,000 for 2008. After 2008, the annual limit will be adjusted for inflation. Again, this all depends on our masters in DC not messing with the tax law between now and 2008, which is about as likely as little green men from Mars joining the starting lineup of the New York Yankees.

KMK