Extensions Federal NC AL

[erchess]

A client wants me to file extensions for Federal, NC, and Al.

I can obviously file his Federal and NC Extensions electronically and that won't be a problem. Can I file his Alabama Extension electronically as well? His Al NR return had to be mailed last year as it wasn't eligible for electronic filing. Also is it too early to file extensions now?

[JohnH]

It's never too early to file extensions.
I started filing some in January, and virtually everything that has come into my office since Mar 8 is getting an extension..

[ChEAr$]

Since AL 40 NR is not eligible for efiling, it stands to reason you can't efile an extension that way.
Actually I've never had this come up in all these years, but go to AL DOR website
and look up the instructions for the form.

[erchess]

Also

For Federal and NC there is substantial savings in filing for extension without paying anything as opposed to not filing for extension and still filing late. Is the same true for AL?

[ChEAr$]

For Federal and NC there is substantial savings in filing for extension without paying anything as opposed to not filing for extension and still filing late. Is the same true for AL?

Now that I'm at the office, here's what instructions to AL 40 NR say:

"If you know you cannot file your return by the due
date you do not need to file for an extension. You
will automatically be granted an extension until October
15, 2010. If you anticipate that you will owe
additional tax on your return you should submit your
payment with a payment voucher (Form 40V) by
April 15, 2010."

And Alabama has a minimum penalty of $ 50 if one should owe more than $ 99.99.

[JohnH]

Yeah. Alabama is one of those states which say "You can get an extension, but not really." It's automatic if you don't need it, and impossible to get if you do need it. Virginia has similar rules.

[erchess]

Wait

RE Alabama, is there a 50 dollar penalty for owing more than $99.99 on a timely return or is there that penalty only if you still owe more than that after your extension and payment made prior to an extended return?

My client by the way can't file his returns much before October because he gets most of his income from entities of various sorts that will file extensions and not give the K1s to him until early October. All are legally Alabama entities although the mailing address of one is in Georgia at the office of a tax professional. No income is generated in Georgia and apparently Georgia does not try to tax the distributed income but Alabama does. The other owners and beneficiaries of these trusts and corps are family and he assures me that he cannot get out of them nor change the way they operate because his father and uncles are in charge.

[JohnH]

In this type of situation, the client must either accept the fact that he may have penalties & interest due to the state when he files, or else he must make a substantial overpayment on the extension in order to insure there will be no retroactive late payment assessments. Usually that isn't so hard to do since there are prior years on which to base a reasonable estimate.

In the final analysis, it's up to the client how he wants to roll the dice - either pay up now and get a refund when he files or accept the fact that he may end up with an underpayment. I let the client decide, while making sure they understand I won't be on the hook for any P&I they may have to pay if the estimate & payment are off base.

Given that interest rates on short-term savings are so low right now, there isn't much downside to overpaying as a precautionary move. On the other hand, if the client turns around and says "I don't have the money", then my position is that it's a moot point anyhow - they'll just have to deal with any P&I when they file. They can't have it both ways.

[ChEAr$]

Alabama penalty applies on a timely filed return, and therefore certainly on extensions. This penalty is like the federal form 2210 penalty, and computes only up through april 15th.
underpayment penalty it is. After april 15th other penalties, just like federal apply.

So to avoid the underpayment penalty, one must pay at least 100% of previous year's tax.
that's probably the easiest way to do it.