A few folks have the feeling that filing their income tax returns after the normal due date is a problem. The IRS finally has extensions that are automatically approved. The late-filing penalties (up to 25 percent of the tax owed) do not apply if the return is filed before the extension expires.
Getting an extension does not avoid the interest and failure to pay penalties on any tax owed. It is best to pay the tax or a little more when filing for the extension to avoid paying interest and the small failure to pay (about 6 percent a year) penalty.
It might be better to get an extension and avoid having to do form 1040X Amended Return later. Some clients get late changes of the information from their brokers or mutual funds. Some business clients want extra time to pay the retirement plan contributions for SEP-IRAs or profit-sharing plans. Some just don’t have all the information, and an extension is needed to do the return correctly.
There are a few folks who believe filing an extension of time to file reduces the likelihood of an IRS audit. I don’t agree, given that the IRS waits until after Oct. 15 to select most returns for audit. The IRS is usually auditing returns about two years after filing.
As you know, individual income tax returns are due to be filed and paid by April 15, but corporation income tax returns are due March 15 of the following year. Most partnership returns are due April 15, but electing large partnerships must provide the information by March 15 (but don’t always do so).
Form 1041, income tax returns for estates and domestic trusts are due April 15.
Extensions for all those returns are to be filed before the due dates and provide extra time to file. For individuals, the extension is automatically approved to Oct. 15.
An extension for partnerships, form 1065 and form 1041 for estates and trusts, is only for five months — until Sept. 15. The extension for a partnership does not extend the time to file the partner individual returns.
We have a few clients who go south for the winter. They pay their estimated tax (sometimes doing the checks and leaving them with us), and we get an extension to file their individual income tax returns. That works just fine. If we expect their tax to be more than in the prior year, they sometimes leave a signed check with us to send with their extension. If the return turns out to be an overpayment (refund), the overpayment is usually just left on deposit to pay the next year’s estimated tax payment that is due April 15.
Did you hear? “How come we have time to fix it and fix it but not enough time to do it right in the first place?”
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Co. CPAs.