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May 8, 2018
With the April tax deadline behind us, most individuals have either filed their returns or filed for an extension. The extension deadline for individual tax returns for the 2017 tax year is October 15, 2018. That gives extenders plenty of time to gather and assemble their documents to have their returns prepared, right? Even with the extra time granted, it may still prove beneficial to have extended returns prepared and filed as soon as possible.
If you have filed an extension for your tax return, one reason it would be advantageous to have your extended return prepared earlier than the October deadline is to ensure that quarterly estimated tax payments are correctly calculated (if you are required to make them). Quarterly estimates for the current tax year are based off of last year’s tax or an estimate of the current year taxes. Since estimating one’s future tax is not as concrete or known as last year’s taxes, filing your return in order to obtain last year’s final tax amount will result in your tax preparer knowing what amount of estimates you need to make in order to avoid estimated tax penalties.
Another advantage of filing your extended return as soon as possible addresses the late payment of tax penalty. While extending your tax return results in extending the tax filing due date, thus preventing you from being subject to the late-filing penalty, it does not extend the tax payment due date, and therefore does not absolve you from the late payment of tax penalty. Depending on your situation, you may have made an extension payment when your return was extended to avoid incurring such a penalty. Most of the time, this payment was calculated using an estimate of your tax liability, and therefore could be higher or lower than your actual tax liability. When your extended return is prepared and filed, your actual tax liability is now determined. If the estimate for your extension payment was low, you can save yourself from incurring higher penalties and interest by paying your remaining balance sooner rather than later. If your estimate for your extension payment was high, you are able to either apply your refund to your quarterly estimates and adjust your remaining payments accordingly, or you are able to receive your refund check earlier.
Please contact us if you have any questions on extended returns and filing them early.