How does Income Tax extension work?

[scrapquitler]

I don't understand how it works?

We are waiting to see exactly what is going on with our income tax mess right now. The accountant did our taxes based on MY records of our income (we own a business) but the 1099 my husband received is substantially different from than it should be (based on the $ we received and the invoices we sent to the client). We are working with the client to get it straightened out and get a revised 1099, but I doubt it is going to happen within the next few days.

As it stands based on our records, we are due a refund. If we figure out somehow that the 1099 is right, we will owe quite a bit. Or it might end up somewhere in the middle.

Obviously we have to file for an extension, which the accountant is going to do in the next couple of days. But I don't understand about paying...we are supposed to pay what we think we will owe when we finalize everything. So if I will KNOW what I am supposed to pay, I wouldn't file an extension, LOL. And it might be a refund, it might be that I owe (a LOT), there is a huge discrepancy.

And what do I do about the quarterly estimated payment that is due later this week? We always pay the estimated payment based on what our income was last year?

 

[crisi]

Pay an estimated amount. If you get a refund when you are done, they will send it to you. Otherwise, you'll be on the hook for interest on what you don't pay. If you don't file at all, you'll also have the no-payment penalty.

If avoiding the interest is important, you think this might not work to your benefit, and you can tie up the money, overpay and wait to get it back. If you think its coming in your favor when it gets straightened out, file as is stating you think you will be getting a refund. You'll pay interest if you have to pay in, but you won't tie up your money.

Again, estimate the payment - last year is fine. You can always re-estimate.

In both cases, its an estimate. No one expects you to hit a good number.

 

[Purseval]

We used to file an extension every year because my wife had to wait for tax forms from England. Since we weren't going to pay anyway it was just a matter of waiting for the paperwork. If you think you will owe the accountant has to estimate then send a check along with the extension request. You settle up the rest when you file your regular return.

If your accountant couldn't explain this to you my next step would be to look for another accountant.

 

[scrapquitler]

If your accountant couldn't explain this to you my next step would be to look for another accountant.

I'm waiting to talk to the accountant, and I wanted to have some idea before I talk to him today or tomorrow so that I had some idea how complicated this is going to be. I haven't talked to him about the extension yet, we thought it was going to be straightened out when DH talked to the client the other day, and it's not.

 

[seashoreCM]

You can estimate your this-year's taxes based on your last-year's taxes for the purpose of making quarterly estimated tax payments and not pay a penalty.

But if you need to file an extension and end up owing yet more, then you will have to pay a penalty.

For most folks gathering the income figures is easy while gathering the deduction figures is hard. This works in your favor for filing an extension because you will end up overpaying (omitting some of the deductions and coming up with a higher tentative tax to pay now, and getting a refund later) and not incur the penalty.