Everything you want to know about Tax Extensions but are too afraid to ask.
Tax Season is well under way, but that doesn't necessarily mean that all of our clients are ready to file. That's totally fine, but for those who aren't ready, there's often a lot of questions around Extensions. That's why this blog is dedicated to answering our most commonly asked Extension Questions!
What is an extension? An extension is when a business or individual is not ready to file their tax return by the normal due date, an extension of time to file can be submitted to the IRS, which grants an extra 6 months from the regular due date. It's important to note that this is just an extension of time to file, and all tax due is still due on the normal deadline.
How does it work? The first step is to notify us as soon as you know that you may need an extension. For businesses, a timely extension must be transmitted to the IRS no later than March 15th, and for individuals it's due April 15th. In order for us to prepare those extensions, we need to be notified by you that you'll be needing an extension no later than March 6th for businesses and April 3rd for individuals.
Do you charge a fee for that? We do not charge a separate fee for extensions, but will charge our normal hourly rate for any preparation and calculations that are necessary in order to file the extension. This is billed as part of the tax preparation.
Is there a penalty? As long as you file within the 6 month period following the original deadline, there is no penalty for filing an extension. However, if you do not pay the anticipated tax due at the time that you file the extension, there could be penalties and interest charged on the tax that should have been paid.
Does it mean I am more (or less) likely to be audited? No. There is a myth that filing an extension will make it so that you are less likely to be audited. This was true at one point, but is no longer true. Filing and extension does not make you any more or less likely to be audited.
If I go on extensions, when will my return be filed? After normal tax filing season ends, our team needs to take a breather. For 2020, we will stop preparing taxes on April 15th and will resume our Tax Preparation work at the end of May. We aim to get all extended clients done during the summer.
When is an extended return due? The ultimate deadline is September 15th for businesses and October 15th for individuals.
Do I need to pay the tax now? Yes, all tax payments are due on the normal April 15th deadline, even if you file an extension. Failure to pay the taxes that are due will result in penalties and interest being charged by the IRS and relevant states. You should do your best to estimate and pay any tax due at the time of filing. If you over estimated, the overpayment will be refunded to you at the time you file your return.