Is an extension right for me?
If you are a new client coming to us mid-season 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 tax 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.
Can you help me calculate my extension payments? - Unfortunately we’re already at capacity for returns and extension calculations for the 4/15 deadline and it would be unfair to our current clients to take our time and focus away from their work to assist in those calculations.
OK I understand, how can I calculate my own extension payments? - It’s a tough thing to give general advice on because every situation is different. Without seeing your specific information, the general recommendation we make is to look at your previous year’s tax return for the total tax amount (1040 line 16 on a 2020 federal tax return) and if your situation was comparable, make sure you’ve paid at least that via withholding and estimated tax payments. If you haven’t paid enough, that difference should be your extension payment. If your income was lower, pay in less, if higher, pay in more in proportion to the change. The same strategy will apply for any states you file in.
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. If you are estimating your own extension payments, we recommend you err on the side of paying in more than you think, and then claiming it as a refund, or applying to your Q1 2022 estimates.
OK how do I file for the extension?- Whether you expect to owe $ or not, file an extension using the IRS or state websites. We’ve selected our most common states
Federal extension - You can electronically file your extension and payment on the IRS website. If you need to make a payment, use the IRS “Direct pay” option and select “Extension” as the reason for payment. It will automatically process the extension when you submit the payment.
NYS extension - You can electronically file your extension 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, you can electronically file the extension and submit payment.
NYC Unincorporated Business Tax - You can electronically file your extension 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. Once you are in, you can electronically file the extension and submit payment.
CA tax payments - CA does not require a separately filed extension for extensions without a balance due. If you do owe $ with your CA extension, you can electronically file and pay on their website
If you’ve filed for your own extension, please forward us a copy for our records so we have it when we begin working together after 4/15. We’re looking forward to meeting you and giving you our full focus and attention once we’ve kept our promises to our current clients.