Extensions and Amended Tax Returns
Your Tax Preparer
March 14, 2020
Whether you file a tax return by the April due date, or obtain an extension to file, filing an annual tax return is mandatory if your income is above a certain level, which will vary depending upon your filing status. Filing an extension will grant you another six months for individuals and corporations (five month extension for partnerships, LLC's, estates and trusts) to file the tax return.
Filing an extension, however, will not allow you to delay payment on any tax you may owe. The extension only gives you additional time to file your tax return. The tax is still due by the original filing due date, therefore you should have a reasonable estimate of the tax liability you will owe. If you anticipate your taxes withheld or paid by estimated tax payments will not cover the tax due, you should file a federal Form 4868 and/or a California Form 3519 and pay the additional tax you anticipate will be due.
Failure-to-pay penalties are 0.5 percent of the unpaid balance per month up to a maximum penalty of 25 percent. If your tax is overpaid, there is no penalty for filing late (the government thanks you for giving them a longer interest free loan). If however you owe money and file late (do not get an extension) the penalty is 5 percent of the unpaid balance per month up to a maximum penalty of 25 percent of the underpaid tax. California automatically allows a six-month extension to file all tax returns (you don't need to file an extension form with the state) unless you owe money, and then you should file Form 3519 with payment of the additional tax due by the April 15 filing deadline to avoid the late payment penalty.
If you are part of a partnership, limited liability company, limited liability partnership, or an S-Corporation, the federal late filing penalties become horrendous. The penalty for late filing of a partnership, LLP, LLC or S-Corporation tax return is $205 per partner, per month, up to 12 months (even if no tax is owed). For example, if a partnership did not obtain an extension, had three partners and filed the return three months late, the late filing penalty would be $1,845. This, from the "new, friendlier Internal Revenue Service."
Should you decide to file an extension, make certain you pay any taxes owing the Federal and/or State taxing agency by April 15 or be prepared to pay penalties and interest on taxes owed. There are three ways you or your tax professional can request an automatic extension of time to file a U.S. individual income tax return: (1) you can electronically file Form 4868 (Application For Automatic Extension of Time To File U.S. Individual Tax Return); (2) you can pay all or part of your estimate of income tax due using a credit or debit card; or (3) you can file a paper Form 4868 by mail.
If you have already filed your tax return you may need to file an amended individual federal return (Form 1040X) and/or an amended California return (Form 540X). These forms and instructions are available on the websites http://www.IRS.gov and http://www.FTB.gov. Some of the reasons for filing an amended return include, but are not limited to (1) correcting income, deductions, credits or other items incorrectly reported on an original return (2) changing your filing status (such as from married filing separately to married filing jointly – sorry you can't go the other way) and (3) changing amounts previously adjusted (oftentimes incorrectly) by the IRS thus giving you a chance to show why their assumptions and changes could be wrong.
An amended tax return may be filed at any time if additional tax is due, but to obtain a refund of tax previously paid, the claim for that refund must be filed within three years (four years for California) after the original return was filed or within two years after the tax was paid, whichever is later. If a return was filed late, a refund claim must be filed within three years from the date the return was due (including extensions).
Moats & Hebebrand CPAs hope this information has been helpful in determining what an "extension" is, whether you should obtain an extension to file your tax returns, or if you should send a payment with your extension.