Is an extension right for me?

 

If you can’t seem to find the time to sort those expenses, are a new client coming to us mid-season, are still waiting for others to send you K-1’s, or just need a little more time to sort stuff out, an extension may be for you!

 

What is an extension? - Taxes have due dates, but many times taxpayers just don’t have all the info they need ready with enough time to prepare a complete and accurate return, so the IRS and the states allow them to file for an extension of time (6 months in most cases) to get that information together. This helps the IRS by cutting down on amended returns, and helps taxpayers by relieving the stress of the deadlines!

Wait, so I get extra time to pay my taxes? - Not so fast! While the extension gives you an additional 6 months to file, it does NOT give you any additional time to pay any tax you may owe! The IRS charges interest on any amounts not paid on time, and to avoid late payment penalties you need to have paid in at least 90% of your expected 2021 by the deadline.

Aren’t extensions bad? - No! All the best tax returns go on extension, even ours sometimes ;) As long as you’ve properly estimated and paid your tax liability (as noted above) there are no negative consequences to filing an extension, and if you have a particularly complicated year or lots of moving parts, an extension will give us the additional time needed to fully explore each area of concern, and communicate clearly with you about the outcomes and impacts. We recommend extensions to clients that come to us mid-season for exactly this reason.

How do I know how much I need to pay if I haven’t done my taxes yet? - If you think you will owe money with the returns, we can help with calculating your extension payments using your best guess of what you think your relevant tax items (income, expenses, investments, wages etc) will be, and advise on how much to pay.

What happens if I don’t pay enough? - If you should have paid in $ with your extensions but didn’t, the IRS will charge you interest (currently around 4% APR), plus a late payment penalty of 1/2% per month. If you also didn’t meet the threshold of the 90% of tax you owed, they can also charge you a failure to file penalty which is 5% of the tax due per month, up to a maximum of 25% of the tax due!

I would like you to calculate my extension payments! What should I get you and when? - If you expect to need an extension for this year, please let us know as soon as you can. Below are our internal deadlines and cutoffs:

  • For clients where we prepared your 2020 tax return, If you let us know you will need an extension calculation before 2/15, there is no charge or deposit

  • For new clients and existing clients who let us know that you need an extension calculation between 2/16 and 3/15, we are requiring a 50% deposit of your expected 2021 tax fee to calculate the extension. This will be credited in full off the final bill when your return is complete.

  • If you let us know that you need an extension calculation between 3/16 and 4/1, we are asking for the 50% deposit plus a minimum $200 rush charge depending on the complexity of the return. The deposit will be credited to your bill when the return is complete, but the rush charge is to compensate our staff for their overtime.

  • We cannot accommodate extension calculations after 4/1, and if we have enough information, we can only prepare an extension without payment, which could leave you subject to penalties as noted above.

When will you tell me what my payments are? Extension calculations are done in the same queue as individual tax returns, so early in the season our target is within 10 days, but workload and availability make make that longer as the season progresses. Rush calculations can be expected to be completed no later than 4/10.

I missed the deadline for you to calculate, but I still want to send in $, how do I make those payments- If you owe taxes with your current year tax returns the easiest way to pay those balances is online. Linked below are the respective government websites and instructions.

  • Federal tax payments - You can make these payments directly on the IRS.Gov website. You will be making an extension payment towards your 2021 form 1040. More info Here

  • NYS tax payments - You can make these payments on the tax.ny.gov website. NY does require you to create a login, so you will need a copy of a previously filed return to set that up. Once you are in, about halfway down you’ll see a section that says “make a payment” and then continue with your payment details. This will be a 2021 tax payment.

  • NYC Unincorporated Business Tax (and GCT for S-corps) - You can make these on the NYC E-services website and similar to the NYS, you will need to create a login, and information from a previously filed return. If this is your first year filing the UBT, you may need to pay that by check. Note S-corp GCT Payments are due 3/15!

  • CA tax payments - You can make these via the CA franchise tax board website and works very similar to the IRS website. This will be a 2021 individual tax payment.

We’re looking forward to working with you again this year, whether it’s before 4/15 or after :)

Ben & Team