Should My CPA File an Extension?

When trying to decide if you should have your CPA file an extension, it is important to understand the rules.  An extension to file is not an extension to pay.  A common mistake people make when filing an extension is not paying their tax. Unfortunately, that is not the case when it comes to your tax owed. Your tax owed is due in full by April 15th. Payment after that deadline is subject to a failure to pay penalty amounting to .5% of the entire amount owed.  The penalty is per month or part of month that it remains unpaid. You will also owr 4% interest on the tax due. So if this is the reasoning behind wanting to file an extension, it’s best to avoid paying your taxes late.

Some people file extensions simply because they do not have their paperwork organized in time to have their return prepared. As long as you pay your taxes by April 15th, filing an extension can be a convenient and beneficial option. Filing a return without properly organized or complete sets of documents can lead to mistakes in your tax return that will require an amendment down the road. Many people find themselves in a frustrating situation if they receive K-1s as part of the information needed to complete their return.

Another situation in which filing an extension can prove useful, is in the case of an unforeseen life event such as a natural disaster, or you have a death or illness in your family that requires prolonged attention. Even organize taxpayers fall victim to unexpected events that make preparing a tax return difficult. Like previously stated though, even in the event of a tragedy, this extension is only valid for additional time to file your return, not your taxes owed.

For the state (California), the rules are very similar. If you don’t pay your taxes  by April 15th, you will be subject to a late payment. The penalty currently is 5% of the tax owed, plus .5% each month or part of a month it is not paid. You will also be charged interest on the taxes owed, at 3% of the full amount owed, compounded daily.

Filing an extension can be a very useful tool when used by well-informed taxpayers. If you are unsure if you should file an extension, contact a local CPA.  It is always best to have a licensed CPA or tax preparer review your tax situation before making a decision.

If you need help filing your extension Abbo Tax CPA.