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Let’s talk about extensions for tax returns. I get so many questions and there are a lot of misunderstandings about how extensions work and why you should use one or not use one. First off an extension is an extension of time to file only. It is never, I’ll repeat never an extension of time to pay the pay dates are always on target. They’re either March 15th or April 15th, depending on which type of tax we’re talking about and they never change. You can’t get an extension of time to pay. So penalties interest will always begin taking no matter if you know your liability or not on those dates. So an extension can be helpful for helping you gather additional information, or if you’re waiting on outside sources to provide you with information that you need to file an accurate tax return on our business returns, we file extensions on every single one of them, whether they’re filed by the due date or not.
And we do this as a matter of protection to help extend the deadline, to make decisions retroactively, if needed. There are several things like retirement plans that allow you to make elections or make deposits to the extended due date of the tax return without regard to when the return was actually filed. So we think it’s a good practice and a good idea to file an extension on every business return out there on individual returns. We only filed those when needed, but, you can look at whether or not that situation may help you on your business or your, sorry on your individual tax return as well. So extend the return only if there’s good reason that you don’t have additional information that you need to file an accurate tax return. If you owe money to the IRS, don’t worry about extending it. That’s not going to help you.
If you owe money to the IRS, set up a payment plan, start making payments. If you think that you can make that payment and pay it off within the next six months, I suggest you just make the payments. You will have penalty and interest to pay that’s part of the deal. However, if it will take you longer than six months to pay that off, I do suggest setting up an installment agreement that will allow you to make payments. There are fees to set up the installment agreement, but they will cut your penalty rate in half down to a half percent per month, rather than 1% per month. So it does help out and does offset that cost. You will need to have that set up on ACH to make those payments some sort of a direct payment form a you no longer will be to just make payments by check and achieve that same status of having the penalty payment cut in half.
They’re also larger fees. If you don’t set up direct deposit or ACH for those payments. So I highly suggest doing that. Also keep in mind that if you have an installment agreement, you can’t be late again. So make plans to pay next year’s taxes before they’re due. You’ll only be able to have that installment plan in place if you’re making the right amount of payments so that you can pay next year’s. The IRS does not want to set up this never-ending loan situation, where you’re never able to pay off your tax debt. So be careful about setting them up plan carefully to make sure that the future liabilities are taken care of. If this was just a onetime oopsie you’re okay, but make sure that you are planning your way through this and make sure that you’re using tax strategies to pay the lowest amount of taxes possible to help yourself out. Thank you very much.
Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.