Tax and Extension Filing Explained
So you filed an extension at the tax filing deadline. This gives you until October 15th to file your tax return. This is becoming more common for several reasons:
a) the law is becoming increasingly complex to produce an accurate return by the deadlines;
b) many of the brokers and banks are delaying the release of the 1099s because of increased reporting requirements;
c) as always there may be other items, such information from partnerships that are needed to complete the return.
This article will give some perspective on extensions, penalties and other issues regarding extensions. This should clear up some of the mystery of the great unknowns of filing extensions. Some deadlines to do other tax-related items are tied to the due date of the return including extensions.
An extension is only an extension to file not to pay. Although there are penalties for underpayment of estimated taxes before April 15th, after that point there are additional penalties and interest. At the present time, the interest rate is 4% for 2009. The penalty for the underpayment of tax is 0.5% per month, or another 6% per annum. This will be applied once there is a balance due when the return is filed.
Did you properly estimate the amount you are going to owe the IRS for 2008? If you did not pay in enough with the extension, the IRS could disregard the extension that was filed and assess failure to file penalties. This will be assessed against any return filed after the October 15th deadline. What is a reasonable estimate? According to the IRS, the proper estimate should be 80-90% of the eventual tax that is due. Otherwise, there would have to be a reason for the underestimation. Not having the money is not an excuse though. This penalty is automatically assessed when no money is paid in through withholding, estimated payments or with the extension. If this penalty is assessed, the penalty is 5% per month for up to five months for a maximum of 25%.
What happens if you cannot pay what is owed? The IRS will work out a payment plan for your situation, with applicable penalties and interest. The important thing is to get the return filed, so that you and the IRS know how much will be due, and then you can start the workout process.
What happens if you don't have accurate information or what you submitted on the return is incorrect? First, reasonable estimates are allowed on the return. Second, amended returns can be filed after the original to correct errors or inaccuracies. There is a period of three years of returns based on the date the return was filed, including extensions, when returns can be questioned by the IRS or amended by the taxpayer or the IRS.
- Article Word Count: 458
- |
- Total Views: 61
- |
- permalink