Advanced Underwriting Consultants

Ask the Experts – April 23

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client is planning on filing an extension to file her taxes. Does she have to have a valid reason to be granted an extension? If she gets an extension, is she required to pay her taxes by April 15, or by the end of the extension?

Answer: An extension to file is automatic, but it isn’t an extension to pay.

There are two penalties to note when filing taxes. First, there’s the failure to file penalty which is generally equal to 5% per month of the unpaid balance. The good news is that the IRS allows an automatic six-month filing extension, meaning the 5% penalty wouldn’t start accruing until October 15 at the earliest. All the taxpayer has to is either file Form 4868 or go to IRS.gov and get extra time through its “Free File” link.

The second penalty is the failure to pay penalty which is generally 0.5% per month plus interest (currently 3% per year). Obtaining an extension to file does not remove the failure to pay penalty. When your client files for the extension, she will be asked to estimate her tax liability, and if she wants to avoid the monthly penalty and interest, she should pay the estimated taxes. She can get a refund if her estimated taxes are more than she’s actually required to pay.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.