SURE, YOU CAN EXTEND, BUT DO IT RIGHT!

If you won’t have your federal (and state) tax returns ready by the end of the day on Tuesday (April 15), it’s probably time to join the millions – actually close to 12 million taxpayers – asking for an extension.

The extension adds another six months to the deadline, making it Oct. 15. The IRS won’t ask you why you need it.  BUT – and it can be a big “but” – the IRSstill expects you to estimate income and pay any taxes by the normal deadline.

Over the last several years, the IRS has become more black and white in its enforcement of various rules that once were monitored loosely.  For example, the tax agency has beefed up its oversight and penalties for compliance involving Forms 1099.

So, what does this have to do with your extension?  In 20 years of practice, I have never had an extension denied; not even one marked with all “zeroes”!  That said, Form 4868 – Extension of Time to File — may be the next in line for enhanced enforcement.  The IRScan deny your extension request based on a poor application.

WHAT THE IRS WANTS

In a nutshell, an extension is not valid unless the taxpayer’s liability is estimated properly, using currently available information.

The penalty can be stiff.  If the tax liability is not properly estimated, the IRS will deny the extension and can assess a late-filing penalty (up to 25% of tax due) in addition to a smaller late payment penalty (1/2% per month).

OUR SOLUTION

Don’t break out in a sweat just yet! You can come up with a reasonable estimate. At EricJohn Ltd., we base your estimated income and taxes on your prior year return and adjust them for your 2013 situation. As a starting point, did you make more or less money than a year ago?  If you have some figures but just haven’t had the time to go back through the numbers, we can work with that information, even if you are missing some income or expenses. We’ll take it from there.

Spending just 5 to 10 minutes to pull together some figures could save you hundreds — maybe even thousands — in tax penalties. If you need to file an extension with zero info, know that it’s risky.We don’t advise it. But it’s better than no attempt at all!