Last week, I wrote all about those deadlines. <shiver> I know for a fact that the very word can strike pain and anxiety into the hearts of certain of my clients (who shall remain nameless).
So, this week … well, I’m going to give you the chance to exhale a little. It’ll be like a warm bath of security, peace and comfort.
(And given all the chaos we’re seeing on the national and international stage, we could all use a little security, peace and comfort, yes?)
And it’s not *just* because the personal tax filing deadline falls on Tuesday April 18th, 2017. (Three extra days!)
Today, we’re going to talk about the magical world of the tax return extension — and what it really means. If, at this point, you’re still staring blankly at a pile of receipts and documents and it just. seems. so. hard. … well, the extension is your friend.
If you’ve already had us complete your taxes, I really would love it if you would help us in a unique way: Would you leave us a review on Yelp or Google Maps for other potential clients to see? We have found that these sources can be so helpful for people evaluating their options, and we would love to have as much information there as possible. Thank you!
So, here’s the truth about extensions. It’ll still feel like that “warm bath” of comfort I mentioned, but with a few deadline-ish things to know as well.
Considering Filing A Tax Extension In Connecticut? Read This First.
“It usually takes more than three weeks to prepare a good impromptu speech.” -Mark Twain
This upcoming Tuesday, April 18, 2017 is the filing deadline for a federal tax return. If you need more time to get your paperwork complete, you need to file (or have us file on your behalf) an extension with the IRS by the end of the day on the 18th. This gives you an automatic six-month extension of time to actually file (until October 16, 2017).
This is the form you can use: http://www.irs.gov/pub/irs-pdf/f4868.pdf
But it’s also as easy for us to do for you as pushing a couple buttons (it really does pay to use a pro).
This can be a very comforting and helpful process for the procrastinators among us.
An important note: An “Extension of Time to File” is not an “Extension of Time to Pay”, unfortunately. The Extension simply gives you an automatic six months of additional time to get your paperwork together and file that return. But, if you owe more than what you paid with your estimate, you’ll be accumulating penalties and interest on the difference — so PLEASE don’t take the entire six months to do this.
That said, depending on the amounts we’re talking about, those penalties and interest payments may not be that much. The late payment penalty is 0.5% of the tax owed after the due date, for each month or part of a month the tax remains unpaid (up to 25%, which, hopefully, you would never hit).
So, when filing your “Extension of Time to File”, you’ll need to estimate what you think you owe to the IRS. This should not be pulling numbers out of thin air. You’ll still need to go through your receipts and tax documents and get them “somewhat” organized.
From here, you can estimate both your income and your expenses, and then approximate what you owe Uncle Sam. Keep in mind that this is an ESTIMATE. And, you’ll have to pay what you estimate you owe at the time we file for the tax extension.
As I mentioned earlier, You can do this all electronically through our office, you can mail in the form WITH estimated payment (must be postmarked by the 18th), or you can call a specialized provider and pay by credit card. We can provide you with the appropriate number to call.
If you cannot pay your taxes due:
First of all, you’re not alone. There are many, even right here in Connecticut (and, of course, beyond), who are unable to pay everything right away. But this is what we’re here for. We can help you through this stuff too.
Here’s what we would tell you…
1) Pay as much as you possibly can right now.
2) You can ask for (and often receive) an extension of up to 120 days to PAY: https://www.irs.gov/taxtopics/tc202.html. It does require a phone call to the IRS. 🙁
3) “Financial hardship” delay: this is if paying your tax bill would demonstrably affect your ability to pay your other bills. Interest and penalties still accrue, but it’s better to register this with the IRS than to simply ignore the bill.
4) Installment payment plan: If you owe less than $50K in taxes, you should usually be able to get an installment payment plan of up to 72 months, simply by asking for it. If this is something you are considering, please let’s talk it over to make sure we come up with the best plan. But you can apply online for this here: https://www.irs.gov/Individuals/Online-Payment-Agreement-Application
5) Negotiate: this is NOT something to try on your own. We can help, but the number of “Offers in Compromise” that get accepted each year are quite small and a knowledge of how the system works is important.
6) Using existing credit sources (credit card, HELOC, private loans): some tax advisors would quickly recommend this, but I would NOT recommend you go this route. If you’ve exhausted the options above, do this instead:
7) Sell something you don’t need anymore and make up the difference.
But again, this is what we’re here for — we’ll walk you through your best options and figure out the smartest course of action for you.
Emelia Mensa CPA