published May, 2015
For people who are on extension, or worse, not filed and not on extension, now’s the time to finish up the 2014 books, gather all those missing or errant receipts for non-cash donations and other tax documents.
May is usually a “dead month” for tax preparation, as the people who wanted to file without an extension are already filed, and the people who were not able to get their information together still don’t have it together.
I have been working all week on complex returns that I put on extension for one reason or other, but I’m about to travel for a couple of weeks to the east coast for educational purposes. See below for California classes.
So, does it make a difference if you file on extension? The payments are still due, and if you pay late, there are penalties
Does filing an extension make a difference in the likelihood of audit? Of course the IRS will not confirm or deny exactly how they select returns for audit, but a big part of it is done statistically. The computer that analyses your filed return doesn’t care if you’re on extension or not. And the Statute of Limitations runs for three years (generally) from when you file.
The only compelling reason to file “on time” in my mind, other than having things done, is to know what you actually owe, so you can lessen the penalties and interest for not paying on time. (There is a penalty for not filing on time—but not if you file the extension and file before it runs out!)
One other thing: if you generally need to make estimated payments, you’ll need to make them for the 2015 tax year as well. This amount is due even if you are on extension for 2014. If you need to make estimates and need a coupon, let me know.
published March, 2015
Speaking of tax deadlines, the corporate tax return deadline is March 15th, which is a Sunday, so Monday March 16th
I charge an extension fee of $100.
IF I DON’T RECEIVE YOUR EXTENSION FEE, I WON’T PUT YOU ON EXTENSION.
Why so harsh? What’s the big deal about filing an extension? It’s just a one page form, right? WRONG! Yes, it’s one page, but to properly extend your return, it is required to estimate the amount of tax due, which basically means doing the tax return before doing the real tax return. There is no extension for payment of the tax; if you pay late there will be penalties and interest. There is a separate penalty for filing late, and throwing together a last-second extension or putting “$0 due” (without at least believing it is true) is a good way to have IRS invalidate the extension, and that can subject you to some very nasty penalties for filing late. That’s bad for you. Ultimately, I’m trying to protect you from paying substantially more in penalties and interest for not filing on time.
The IRS offers a six-month extension, but it is best if you still file as soon as possible within those six months. If you wait until the last minute, your returns may not get finished on time. If your return is not filed by the extension deadline, the government computes late filing penalties from the original due date and disregards the extension.
Don’t have the extension fee together at extension time? In addition to cash, check and PayPal, I also accept MasterCard and Visa.
You may also put yourself on extension. Be warned that some states do not accept the federal extension as having simultaneously extended the state return, and also that the “extension” is an extension to file, not an extension to pay. I file extensions electronically, so I get an electronic confirmation. If you file one for yourself, I suggest certified mail with return receipt service for confirmation. No, I cannot “just answer a few quick questions” about your extension if you haven’t paid me to prepare it; it’s not fair to the other people for whom this policy applies.
Note that the extension payment policy only applies if you miss the deadlines. If you have questions about this policy, please call me to discuss them.
Thanks for using our services for the 2014 tax year.
published September, 2014
For an individual, the federal penalty for “failure to file” is 5% of the unpaid balance for each month, or part of month that the return is late, up to a maximum of 25%. (There is no penalty if the return shows no tax due.) If you have a “failure to pay” penalty for the same month(s), the filing penalty is reduced by the failure to pay penalty. California charges up to 25% with a minimum penalty of the lesser of $135 or 100% of the tax due.
For an LLC or S Corporation, the federal penalty for “failure to file” is $195 for each month, or part of a month, up to twelve months, multiplied by the number of members/shareholders during the year (!). If tax is due, the penalty is 5% of the amount due up to a maximum of 25%. California also charges 5% of the tax due for failure to file up to 25%.
If you were on extension but don’t file by the extended deadline, the extension is ‘vacated’ and you go back to the original due date of 3/15 or 4/15. So, if you file one day late, on 9/16 or 10/16, you’re already at the maximum late penalty.
If you owe money too, there is interest and penalties on the amount due.
If you think you won’t be able to get me your materials, let me know soon, and I’ll refer you to someone who would be willing to file your return late for 2013.
If you’re expecting that I’m going to remember to put you on extension, but you have not heard from me, you may be disappointed (and penalized). You can file your own extension. For individuals, the federal extension is Form 4868, and you may need to prepare a state extension as well. And no, I can’t answer ‘just one simple question’ about extensions. I’m currently charging $100 minimum for extensions to cover my computer fees, and pay for some follow up. This is in addition to the regular tax preparation fee for those who need extensions. If you’ve delivered your materials to me and I am unable to prepare your return on time, I may choose to put you on extension and then I won’t charge a fee.
If you’ve sent me your materials and you have not heard back from me—I don’t have your materials and I’m not going to prepare an extension for you. I have contacted everyone who is “on my list.” I had one envelope delivered to the old Berkeley address and wasn’t forwarded—thank goodness that client emailed asking about their returns! Just to reiterate, I’ve moved my office to Alameda—see the address and contact info at the bottom of this newsletter.
published April, 2012
You may have a requirement to make estimated payments for your 2012 taxes, and then again, you may not. The IRS has a “pay as you go” system where they ask us to make payments during the tax year. Corporations and Individuals have different due dates, and CA is not divided into four equal payments, but most calendar year people and entities have the first payment due April 15th, extended because it’s Sunday.
How do you know what to send in? The default amount is to pay ¼ of what you owed for the prior year. This may be problematic if we haven’t finished your return for the prior year! For corporations, the payment due for the minimum CA tax is $240, but may be more if you owed more money in the prior year.
What was your income in the first Quarter? If it’s less than last year, you may not need to send in as much as the prior year.
Oh, and individual returns or extensions are also due April 16.
Some of you know, Monday April 16 is Emancipation Day in Washington DC, and therefore a holiday, extending the deadline by ONE MORE DAY, but I don’t want to encourage waiting until the last minute, so I’m not going to mention that.
published March, 2010
The day is getting close to file an extension. Corporations and LLC’s taxed as Corporations are DUE MONDAY MARCH 15th.
People are due Thursday April 15th.
If you don’t file an extension, you may receive a Penalty for Late Filing. For corporations, partnerships and LLCs (which are also partnerships), the extension form is 7004 and here’s the link: www.irs.gov/pub/irs-pdf/f7004.pdf You’ll need to decide which entity you are based on the return you file S Corporations file an 1120S, and C Corporations file an 1120. Each has a different code to enter on the extension. You’ll also need to decide if tax is owed tentatively, and make a payment.
It is possible your extension may be invalidated if you don’t make a proper payment. The payment is made either through the on-line EFTPS system, or via Form 8109 coupon, the payment does not go with the extension form.
In California, generally the federal extension suffices—you don’t need to file a state extension, although if you owe California money, you pay WITH the extension. The California extension form is a payment voucher numbered 3539 and here’s the link: www.ftb.ca.gov/forms/94_forms/94_3539.pdf
Some states DO require a separate extension from the federal extension, in addition to the federal extension, like Washington DC.
If you want me to put you on extension, I’ll need an idea about your income for last year, and I’ll make an estimate of what you’ll owe. I will also send you an invoice for the minimum fee for your return. If you owe a payment, I will send you a payment coupon for the state or give you an amount to pay to the IRS.
published April, 2007
The thing I’m supposed to say is “an extension to file is NOT an extension to pay.”
That means if you expect to owe tax for 2006, you should send a payment WITH the extension. There’s some possibility that if you don’t include payment, the government could invalidate your extension, which leads to a ‘failure to file’ penalty based on what you owe. It’s not clear how they decide if you willfully didn’t make a payment vs. you just didn’t know what you owed and you guessed wrong. To be honest, I’ve never seen them void an extension. But it could happen.
If you don’t pay what you owe, late payment penalty and interest will continue to accrue, even if you DID file an extension. Filing the extension only allows you to avoid the ‘failure to file’ penalty of 5% per month or part of month, up to 47.5% of the amount owed.
So, if you want me to file an extension, let me know, preferably BEFORE APRIL 13. I’ll be much more polite up to April 13–after that, I start to get stressed out (yes Virginia, even I get stressed out at some point!).
Let me know if you intend to make a payment with your extension; I can put you on extension electronically. Since my software charges me per social security number I “activate,” I’ll be sending a small bill to people I put on extension, to cover my fee. That way we’re ‘clean’ — if you go to someone else to get your return done, I’ve covered my costs. If you subsequently have Tax Buddha prepare your return, we credit what you’ve paid against the future return cost.
You can also do your own extension, look for Form 4868 at www.irs.gov If you successfully file a Federal Extension and DON’T OWE STATE tax, you don’t need to do a state extension (at least in CA). The federal extension covers you. If you DO owe state tax, you’ll need to look for Form 3519 at www.ftb.ca.gov. I’m told you can pay CA with a credit card (for a fee).
published February, 2007
Rumors of avoiding an audit by filing on extension are greatly exaggerated
The IRS selects returns for audit based on three criteria: The “DIF” Score, Randomly, and Document Matching. None of these methods have anything to do with the date you file.
The DIF Score (Discriminate Index Function—now that you know what it stands for, is it any clearer?) is a “secret” statistical analysis of returns based on income and other factors—The IRS has and idea of what they expect you to be reporting based on your income. They won’t reveal their criteria for obvious reasons.
Sometimes “your number is up” and you get audited for no other reason than random selection. It’s not personal. It keeps people honest.
Document matching is where they take the 1099s and W-2s and whatnot, and match them to what you’ve reported. No problem if you report more income than appears on your 1099s, but it is a problem if you report less.
For stock sales, the IRS only gets the “sale” amount, they don’t get the cost—so the IRS is going to presume you bought your stock for $0 unless you report differently, so you need to report, even if you had a loss on sale of stocks. It can take the IRS up to three years to match documents, but they usually get around to it.
We at Tax Buddha recommend you report ALL your income, even if you don’t think you’ll get caught. “Missing 1099s” have a notorious way of appearing after the fact—for example when the person who paid you gets audited. You’re looking out for yourself when you report completely, plus, it’s the law.
If you actually do forget and find a 1099 or some other document after the fact, let us know so we can file an Amended Return for you. It is much better to discover your own mistake and take action to correct the error than to have the IRS discover it. You’re not going to jail if you’ve made an error. Of course if you forget that million dollars of income, the story might be different.