Avoid a Surprise!

The weather has finally cooled down.  The trees are showing color.  Tax Season for 2016 is official (and finally) over.  Therefore, it must be fall!

Each filing season brings to light some common misunderstandings.

Let’s take a look at a few.

  1. How many extensions can I file?
    Just one for both individuals and businesses.  Several years ago you could file two extensions.  The first extension gave you until June 15th to file and the second extension to September 15th for businesses.  For Individuals it was June 15th and October 15th.  The IRS eliminated the June 15th extension and went to an automate six month extension.  This is part of the paperwork reduction act, I suspect.
  2. What does an extension mean?
    It allows the business or individual extra time to file the return.  However, it does not allow extra time to pay.  This is a key point and misunderstood by many.  Any amount due has to be paid by the first due date.
  3. If I don’t file my return how do I know how much I owe?
    Reasonable estimates can be made that should get most taxpayers close to the actual amount.  Most of the time, if 90% of the previous year’s total tax is paid, than there is not a failure to pay penalty on amounts owed.  There will be interest on the amount owed, but the interest rate is rather low (around 4% or 5% percent).
  4. What if I do not have the money to pay? Can I wait to file my return until I do have the money?
    The return should be filed on time whether the taxes can be paid or not.  There are various penalties and one is a failure to file penalty.  Therefore, it is not a good idea to hold up the return.  If there is not any money to pay the taxes, an installment arrangement can be set-up after the return is processed.  After the return is processed a letter will be sent with the amount due.  An application for the installment arrangement can be obtained by calling the telephone number in the letter or online at www.irs.gov.
  5. Will I get audited if I file an extension?
    Audits are pulled on a random basis and have more to do with difference in line items from year to year than the date you filed.

Before long tax season will begin again.  Do your planning now and know the facts in order to be prepared for next year’s filing season.  But, save some time to enjoy the fall.

For questions about your tax return or to plan for 2017, contact our office today.