A Modest Proposal – Let’s Fix Extensions

John Stancil

I remember when tax season was pretty much over after April 15. Sure, there were extensions, but for four months and you had to justify an additional two-month grace period. Since the additional extension was mostly perfunctory, the IRS changed things and now grants a single six-month extension. No additional extensions are granted except in the case of a federally declared disaster area.

An extension, it should be remembered is only an extension of the time to file. You must pay any anticipated tax liability when filing for an extension. Failure to do so will result in a penalty and interest for underpayment of taxes. Of course, the extension does avoid a late filing fee when filed by the extended due date.

More and more taxpayers are now taking advantage of extensions. This has several negative effects. First, it has effectively extended the tax season through mid-October with a more frantic deadline since the return must be filed by that date. This year, the two-weeks leading up to October 17 were by far the most hectic times I’ve experienced in an October filing season. And I had several clients inquire about a further extension. To make matters worse, Congress has once again extended the filing season for some by a month, as non-profit organization will have a six-month extension beginning in 2017. Since their returns are due May 15 (for a calendar year taxpayer), that takes the filing season into mid-November. And preparers need some time to update themselves on any tax changes.

Some taxpayers are forced to extend and file in the last month, as they may be receiving a K-1 from an investment in a partnership, S corporation or a trust or estate. These K-1’s are filed as a part of the entity return, so are often not available to the taxpayer until Mid-September, when the return is filed by the extended due date.

It has been my observation, however, that many taxpayers don’t begin to get their tax documents ready until the last minute. I have seen situations where taxpayers were scrambling for documents on October 14. This procrastination may mean the taxpayer overlooks documents in a hasty attempt to get everything together. Since it is almost to the end of another year, taxpayers often get confused and submit deductions for both years. Other times, tax information is simply forgotten. It is a good idea to start early to assemble your tax information, even if it will be a while before you can be ready to file.

I would also suggest that taxpayers get everything together before submitting documents to preparers. Going back and forth for more information wastes precious time for both of us, time we don’t have as the deadline approaches. Have your records in order. The preparer can look at your bank records and bills, but he can’t tell what the other expenditure or deposit was for. A spreadsheet works wonders. Prior to the end of the year, sit down with your preparer for a planning session. This will be beneficial for all involved.

A modest proposal

Let’s cut the life of an extension to three months with no further extensions allowed. Partnerships, S corps, and estates and trusts could be due March 15, with an extension to June 15. Individuals would be due April 15, extended to July 15. Saying that this does not give the taxpayer adequate time is not a valid argument in most cases, as many taxpayers don’t start preparing until late in the game. Move the deadline up, they will start getting ready earlier.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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