		Filing aN Extension
IRS FORM 4868 "Application for Automatic Extension of Time To File U.S. Individual Income Tax Return" The Extension form requires that you “estimate” your total tax liability for the previous tax year, show how much you have already paid in (through withholding and any estimated taxes), determine the balance due and finally write down how much of the balance due you are paying with the Extension. (Most states have their own extension forms and requirements you should also take into consideration if you are filing a Federal Extension.) POSSIBLE FEES AND PENALTIES FOR LATE FILING If you don’t file your return on time (April 15^th each year) the Internal Revenue Service can hit you with a late filing penalty of 5 percent of the tax not paid by the due date for each month or part of a month your return is late. Generally, the maximum penalty is 25 percent. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller. If you owe money there are additional costs. On top of the late filing penalty, there is a late payment penalty. This is usually 0.5 percent of any tax not paid by the due date. It is charged for part of a month that the tax is unpaid. The maximum penalty is 25 percent. The late-payment penalty can be excused if you have and can show “reasonable cause” for not paying on time. You are considered to have reasonable cause if at least 90 percent of your actual liability is paid before the regular due date of your return (April 15^th) through withholding or estimated tax payments. However, you will still owe interest on any tax not paid by the due date of your return. This interest runs until you pay the tax. Even if you have a good reason for not paying on time, you’ll still owe the interest. NOTE: The IRS recently announced they are lowering the interest rate from 4% per year to just 3% per year. *Back to Topics*		We GENERALLY try to talk clients out of filing an extension. If you are owed a refund there is no reason to send in an extension n the first place (If you don’t owe the IRS cannot demand late filing fees.) But if you are expecting a refund then why delay filing unless you have some very good reasons? The problem is how does an actor know for sure if they will get a refund or worse, owe money (and if so, how much) on their return without putting together all of their tax information from tax forms and their deductions? Our experience has shown it is almost impossible for a performer to be able to estimate the amount he/she will owe on April 15^th. For most performers you cannot gauge an accurate assessment of their tax situation simply by looking at last year’s return. Year to year their level and type of income varies, their expenses fluctuate and, depending on the type of work they did, the amount of withholding on their income can fluctuate enormously. By the time you have done the work necessary to find out if you will owe (a requirement for filing the extension form) you have essentially prepared your tax return. In that case just finish your return and forget about an extension. If you do owe, and you don’t file your return or an extension, then the IRS can assess numerous fines and penalties for late filing. But there is a frequent misunderstanding about extensions. If you owe money then filing an Extension does NOT extend the date the amount was due (April 15^th.) The amount you owe is still due on April 15^th. All an extension allows is a delay in the filing of the actual Tax Return. If you have paid at least 90% of the amount you owe by April 15^th then the IRS will usually not impose late filing fees. Even if you owe money and you can’t pay it on April 15^th, the IRS urges you to send in your return anyway. Ultimately when you do file you won’t be hiding anything from them. You can always work out a payment arrangement with them later but you save yourself the late filing fees. Nevertheless, a few days before April 15^th the phone starts ringing with clients who want to file an extension in the belief that all they need to do is file for an extension and they can continue to put off their taxes until Oct. 15^th, including the requirement to pay any taxes they may owe. Unfortunately that is not what an extension will allow. FILING AN EXTENSION The Extension (Form 4868) permits you to send in the paperwork (your tax return) late without being penalized for the late filing fee indicated above. It does not absolve you from having to pay any taxes owed by April 15^th. As stated above, if you owe money after April 15^th the IRS can still assess interest and penalties for lack of payment regardless of filing the extension or not. (SEE OPPOSITE COLUMN) Why File an Extension? There ARE some good reasons to file an Extension. It is our opinion that if you don’t have all of your tax forms from banks and employers you probably shouldn’t send in the return. Correcting it later can be a flag that increases your chances of an audit because a human being looks over the amended return. If you don’t amend the return when you get the forms you will undoubtedly experience anxiety several months later when you hear from the IRS that you made mistakes on your return and you owe more money. Not filing because you were just lazy or didn’t bother to compile your tax records in a timely manner can cause you to pay a lot money for no reason at all. Obviously if you are owed a refund then you should file your taxes as soon as you can. We can’t help but wonder why anyone would want to allow the IRS to keep their money in the first place? You are not going to receive interest from the IRS and most actors we know need their money in their pockets to pay for their career. Many preparers ask you to sign an extension form and delay the filing of your return simply because they are too busy and they know you are going to get a refund. Unless they are going to be paying you interest on your delayed refund that concept is absolutely unfair to their clients. It astounds us that numerous tax payers allow this to happen year after year. It is your right to get your refund in a timely manner. What is even more astounding is the urgency we always hear from clients around Oct.15^th about getting their refunds back. We can’t help but think if they need the money so badly then why did they put off filing their taxes for another six months? After three years, your tax return stands You should also be aware that the statute of limitations runs from the date you actually file, not the original due date. The statute of limitations is a law that limits the amount of time the IRS has to audit your return. Although normally, that would be three years from the due date of the return (usually April 15), filing an extension means the statute of limitations doesn't begin until the return is actually filed. If the IRS doesn’t audit you within that three-year period, the government is legally prohibited from challenging your deductions. However, if the IRS can prove you committed fraud (generally not reported all of your income), there is no time limit. Here, the burden of proof is on the IRS. They must prove that you intended to cheat and that can be difficult to prove. *Back to Topics*

Filing aN Extension

IRS FORM 4868

"Application for Automatic Extension of Time To File U.S. Individual Income Tax Return"

The Extension form requires that you “estimate” your total tax liability for the previous tax year, show how much you have already paid in (through withholding and any estimated taxes), determine the balance due and finally write down how much of the balance due you are paying with the Extension. (Most states have their own extension forms and requirements you should also take into consideration if you are filing a Federal Extension.)

POSSIBLE FEES AND PENALTIES FOR LATE FILING

If you don’t file your return on time (April 15^th each year) the Internal Revenue Service can hit you with a late filing penalty of 5 percent of the tax not paid by the due date for each month or part of a month your return is late. Generally, the maximum penalty is 25 percent. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller.

If you owe money there are additional costs. On top of the late filing penalty, there is a late payment penalty. This is usually 0.5 percent of any tax not paid by the due date. It is charged for part of a month that the tax is unpaid. The maximum penalty is 25 percent.

The late-payment penalty can be excused if you have and can show “reasonable cause” for not paying on time. You are considered to have reasonable cause if at least 90 percent of your actual liability is paid before the regular due date of your return (April 15^th) through withholding or estimated tax payments.

However, you will still owe interest on any tax not paid by the due date of your return. This interest runs until you pay the tax. Even if you have a good reason for not paying on time, you’ll still owe the interest.

NOTE: The IRS recently announced they are lowering the interest rate from 4% per year to just 3% per year.

Back to Topics

We GENERALLY try to talk clients out of filing an extension.

If you are owed a refund there is no reason to send in an extension n the first place (If you don’t owe the IRS cannot demand late filing fees.) But if you are expecting a refund then why delay filing unless you have some very good reasons?

The problem is how does an actor know for sure if they will get a refund or worse, owe money (and if so, how much) on their return without putting together all of their tax information from tax forms and their deductions?

Our experience has shown it is almost impossible for a performer to be able to estimate the amount he/she will owe on April 15^th. For most performers you cannot gauge an accurate assessment of their tax situation simply by looking at last year’s return. Year to year their level and type of income varies, their expenses fluctuate and, depending on the type of work they did, the amount of withholding on their income can fluctuate enormously.

By the time you have done the work necessary to find out if you will owe (a requirement for filing the extension form) you have essentially prepared your tax return. In that case just finish your return and forget about an extension.

If you do owe, and you don’t file your return or an extension, then the IRS can assess numerous fines and penalties for late filing. But there is a frequent misunderstanding about extensions. If you owe money then filing an Extension does NOT extend the date the amount was due (April 15^th.) The amount you owe is still due on April 15^th. All an extension allows is a delay in the filing of the actual Tax Return. If you have paid at least 90% of the amount you owe by April 15^th then the IRS will usually not impose late filing fees.

Even if you owe money and you can’t pay it on April 15^th, the IRS urges you to send in your return anyway. Ultimately when you do file you won’t be hiding anything from them. You can always work out a payment arrangement with them later but you save yourself the late filing fees.

Nevertheless, a few days before April 15^th the phone starts ringing with clients who want to file an extension in the belief that all they need to do is file for an extension and they can continue to put off their taxes until Oct. 15^th, including the requirement to pay any taxes they may owe. Unfortunately that is not what an extension will allow.

FILING AN EXTENSION

The Extension (Form 4868) permits you to send in the paperwork (your tax return) late without being penalized for the late filing fee indicated above. It does not absolve you from having to pay any taxes owed by April 15^th. As stated above, if you owe money after April 15^th the IRS can still assess interest and penalties for lack of payment regardless of filing the extension or not. (SEE OPPOSITE COLUMN)

Why File an Extension?

There ARE some good reasons to file an Extension. It is our opinion that if you don’t have all of your tax forms from banks and employers you probably shouldn’t send in the return. Correcting it later can be a flag that increases your chances of an audit because a human being looks over the amended return. If you don’t amend the return when you get the forms you will undoubtedly experience anxiety several months later when you hear from the IRS that you made mistakes on your return and you owe more money.

Not filing because you were just lazy or didn’t bother to compile your tax records in a timely manner can cause you to pay a lot money for no reason at all. Obviously if you are owed a refund then you should file your taxes as soon as you can. We can’t help but wonder why anyone would want to allow the IRS to keep their money in the first place? You are not going to receive interest from the IRS and most actors we know need their money in their pockets to pay for their career.

Many preparers ask you to sign an extension form and delay the filing of your return simply because they are too busy and they know you are going to get a refund. Unless they are going to be paying you interest on your delayed refund that concept is absolutely unfair to their clients. It astounds us that numerous tax payers allow this to happen year after year. It is your right to get your refund in a timely manner.

What is even more astounding is the urgency we always hear from clients around Oct.15^th about getting their refunds back. We can’t help but think if they need the money so badly then why did they put off filing their taxes for another six months?

After three years, your tax return stands

You should also be aware that the statute of limitations runs from the date you actually file, not the original due date. The statute of limitations is a law that limits the amount of time the IRS has to audit your return. Although normally, that would be three years from the due date of the return (usually April 15), filing an extension means the statute of limitations doesn't begin until the return is actually filed.

If the IRS doesn’t audit you within that three-year period, the government is legally prohibited from challenging your deductions. However, if the IRS can prove you committed fraud (generally not reported all of your income), there is no time limit. Here, the burden of proof is on the IRS. They must prove that you intended to cheat and that can be difficult to prove.

Back to Topics