Extensions

Everything You Should Know – Here are the Facts

1. 1. An "Extension" is an extension of time to file your tax return. It is not an extension to pay.
2. 2. It is granted until October 15. That is an extension period of 6 months.
3. 3. The extension is granted automatically. There is no need for an explanation as to why an extension is needed.
4. 4. An extension does not increase the likelihood that your return will be selected for an audit.
5. 5. You do not need to sign or see the extension. Your accountant can sign the extension for you, and mail it to the IRS and the state. Your accountant only requires your name, address, and social security number.
6. 6. If you do NOT owe any money to the IRS or the state, or if you are due a refund, an extension will not put you at any disadvantage. It gives you extra time to gather information needed for your tax return and have it prepared, in an intelligent (and less stressful) way, especially if there are complicated issues to resolve, or some items of information to be gathered.
7. 7. If you DO owe money to the IRS or the state: Any delay in payment of taxes due, past the filing due date of April 15, will result in interest charges, with a penalty for late payment, calculated from the filing due date, April 15, until you actually pay all monies owed. This does not increase the likelihood of your return getting selected for an audit. It just costs you money. The interest and penalties are more expensive than a credit card debt, and come with pages of IRS correspondence.

8. 8. If you DO owe money - Here is what you can do: Calculate (or have Robert Greene CPA do it for you) approximately how much you owe. Whenever possible add a small amount for a cushion to the calculated estimate. This may help you avoid expensive and unnecessary penalties should your income be higher than estimated.

   Send that amount to the IRS and your state with the extension.

   When your return is actually filed, you will have already paid the tax on the return - timely. You should not owe and should be in an overpayment position. You will then have the choice to get a refund or apply the money to the following tax year's tax liability.

9. 9. If you are self-employed or normally make estimated payments:

   Use the extension as an opportunity to pay in tax money designated as being paid for the extension of the year 2009 tax return. Put in an extra amount for the first quarter of the year 2010.

   If you end up owing more than you calculated, you may have saved yourself from the interest and penalty situation, by using your first quarter 2009 estimated tax payment as a payment for the year 2009 tax liability. You can make that one payment serve either purpose, to your advantage. If your tax due calculations were accurate, then your overpayment will be applied forward to the year 2010 tax liability as the first quarter payment, made on time.

   Important Point: If you own all or part of a Subchapter-S corporation, and that corporation goes on extension on March 15th, the form 1120S K-1 will not be available to give necessary information for your individual tax return Form 1040.This will mean that your personal tax return must go on extension on April 15th. It is not realistic to expect that the corporate tax return, which is on extension, can be completed after March 15th and before April 15th.

   Specific Note for Corporate Clients: The corporation filing deadline is March 15th every year. There is not much time between January 2 and March 15, only 10 weeks. In this time frame, all accountants are working on the previous year’s fourth quarter payroll taxes, and the related Forms W-2 and 1099, as well as individual income taxes. In Washington D.C. the legislators have referred to this as “workload compression for accountants.”

   Unlike individuals, corporations are not required to submit Form W-2 with their tax return. They do not need to wait for Forms W-2 or 1099, or statements from any other entity. Their income and expenses are already recorded in their own documents. They have no reason to wait for anything. In fact, to ensure that they minimize taxes, it is in the corporate clients’ best interest to move forward early, so that they can receive the care, time and consideration from their accountant when he has the time to consider various decisions and strategies.

   Waiting until the later portion of this 10-week period gives the client no advantage. On the contrary, in March, the client will encounter a tired and stressed accountant who has little time, energy or patience left to devote to their work, no matter who or where the accountant is.

   Any corporate client who submits financial records to their accountant after February 28th has a real possibility of going on extension. The same applies to clients, who submit incomplete information earlier, then delay until later answering questions and supplying necessary documentation.

   These are just the necessary facts of life, relating to the time constraints we all must operate within. It is important that clients understand these facts.