1. Did you request an extension in time?
If somebody was late submitting an extension, the extension in all probability isn’t legitimate, mentioned Lisa Featherngill, the nationwide director of wealth planning at Comerica Bank. “This isn’t a problem if they are due a refund,” she says. “However, if they owe tax, they can be assessed a late filing penalty.”
Technically, mentioned Featherngill, that is the Failure to File Penalty, and it’s 5% of the unpaid tax for every month (or partial month) {that a} return is late, as much as 25% of the unpaid stability.
Note: A legitimate extension must be postmarked by the due date of the tax return, or April 18 for 2021 returns.
2. Did you estimate and pay any taxes owed by the April deadline?
Taxpayers who request an extension to file their federal taxes should estimate and pay any taxes owed by the April deadline, mentioned Jean-Luc Bourdon, CPA/PFS, the founding father of Lucent Wealth Planning. “That estimate may or may not be correct,” he mentioned. “So, when the taxpayer’s tax return is later prepared, they may find out that they owe more than they paid—and face penalties.”
Given that, Bourdon mentioned it’s all the time greatest to organize an prolonged tax return as quickly as doable to know for certain if there’s a tax shortfall. And if there’s a tax shortfall, to restrict penalties, it’s higher to pay it earlier than later, he mentioned.
Meet Our CPA and Tax Expert: Jean-Luc Bourdon
Bio: Jean-Luc Bourdon, CPA, PFS, Wealth Advisor
3. Do you make quarterly estimated tax funds?
Taxpayers who make quarterly estimated tax funds ought to take note of their current-year estimates, mentioned Bourdon. “Estimated payments are based on the prior year’s tax return,” he mentioned. “So, when that tax return goes on extension, the quarterly estimated payments might get forgotten.”
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It is, mentioned Bourdon, a standard oversight.
Another challenge: The estimated tax funds will not be enough to keep away from underpayment penalties. Here once more, mentioned Bourdon, it’s greatest to file the prolonged tax return as quickly as doable to get good estimates for quarterly funds.
Of word, if taxpayers on extension later discover out they’ve underpaid their quarterly estimated funds for the present 12 months, they may be capable to meet up with payroll withholdings or different tax withholdings from, say, retirement accounts if relevant, mentioned Bourdon.
4. Don’t postpone submitting your tax return to the October deadline
There’s no prize for submitting on the final minute and it usually causes a lot frustration and missed planning alternatives, mentioned Bourdon.
5. Be an excellent consumer
Over the previous few years, the IRS and the advanced tax surroundings have been onerous on tax-preparers, mentioned Bourdon. “There’s also a shortage of tax talent,” he mentioned. “Consequently, good tax pros don’t need difficult clients and get to be choosy.”
In truth, a few of them hearth their worst shoppers every year, he mentioned. “To avoid receiving a ‘disengagement letter,’ don’t be a last-minute filer,” mentioned Bourdon. “In general, get your complete tax information to your tax-preparer as early as possible. Thank you cards and hugs are good ideas too.” Read Extension of Time To File Your Tax Return.
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Editor’s Note: The opinions expressed on this article are these of the authors. The content material was reviewed for tax accuracy by a TurboTax CPA professional.
Source: www.thestreet.com