A lot of people assume that they will have no penalties if they file an extension. But did you know that an extension only protects against the failure to file penalty? If you owe tax, you will incur the failure to pay penalty for paying after April 15, regardless of whether you filed an extension or not.
A lot of people also assume they are free and clear of penalties if they file on time and pay on time. But did you know that you could incur the underpayment penalty if you did not pay enough taxes during the year?
There are three main kinds of penalties:
1) failure to file penalty – if you do not file an extension or the tax return by April 15
2) failure to pay penalty – if you owe tax and do not pay by April 15, regardless of whether you filed an extension or not
3) underpayment penalty – if you do not pay at least 100% of the prior year’s tax or at least 90% of the current year’s tax during the year
You can avoid all three kinds of penalties if you are receiving tax refunds on your tax returns.
Let’s discuss how we can help you manage your taxes and avoid penalties through W-2 payroll tax withholdings and estimated tax payments.