This year, the Internal Revenue Service (IRS) estimated that tens of millions of taxpayers waited until the last day to file their individual returns. For those who could not make the filing in time, there is IRS Form 4868.
Eli Financial covers numerous taxation topics, such as rules for the IRS extension form, in detail in its regular webinars, audio conferences, and virtual boot camps. Hosted by recognized leaders in the industry, these training sessions offer key insights into everything from IRS scrutiny on cryptocurrency reporting to the rise of private tax debt collectors—and how you can protect your clients from scams associated with this relatively new movement.
Extensions Change Paperwork—Not Payment—Deadline
When faced with the reality of the filing deadline, many individual filers automatically think of asking for an extension without realizing how little may be gained from the reprieve. What’s key is this: An extension does not preclude taxpayers from estimating their tax liabilities.
The Tax Adviser notes that IRS rules for filing Form 4868 include:
- Properly estimating taxes due or owed
- Entering total tax liability on line 4
- Filing Form 4868 by the normal return due date
“Normally, filing this form results in an automatic six-month extension of time to file without any late-filing penalty,” The Tax Adviser notes. “The estimated taxes due should be paid with the extension application.”
Tax accounting software pros Intuit underline that last point: “Remember that an extension of time to file your clients’ returns does not mean taxpayers have any additional time to pay their tax,” the site remarks.
Good Reasons to File: Missing or Inaccurate Information
Filing extensions for high net worth clients is standard, notes Sirote, a litigation firm based in the Southeast, in an article titled “Extension Filing Problems Can Cost Your Client Big Bucks.” Many times, these clients hold investments in partnerships that don’t issue their own forms until after the April deadline.
While asking for the deadline is (almost) as easy as clicking a button, the potential penalties for these clients are high since the failure to pay can be up to 25% of taxes owed.
“In addition to these concerns with the federal extension, applicable state extensions and the rules and regulations associated with them require the same careful consideration,” adds The Tax Adviser. “The requirement to electronically file some state extensions raises the due diligence required by practitioners.”
Other reasons to file, explains Intuit in an article titled “Can’t File by the Deadline? Top 3 Reasons to File a Tax Extension,” include being out of town during tax season, times when schedules and timing interfere, or times when a major life event simply takes precedence.
Whatever you do, adds Intuit, don’t let a client seek an extension because they can’t pay—that’s not an excuse sanctioned by the IRS.
“Inability to file is the worst reason to file an extension,” tax educator Martin Cole told Intuit.
If inability to pay is the case, advise your clients to seek out one of the payment alternatives offered by the IRS, including a short (60-120 day) extension to pay, a payment installment program, or use of a credit card or loan, which while more expensive than paying with a check may still be less expensive than the combined penalties and fees they will owe the feds.
“If you do not find an option that works for [your client], other alternatives, including a temporary suspension of IRS collection efforts, may be available,” the IRS stated in “Payment Alternatives When You Owe the IRS.” The agency states: “Contact the IRS immediately to discuss these other options.”
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