Refunds Due -Need for Extensions?

[taxea]

John are you having a bad day...is the season getting to you

the bottomline is if you don't pay with the extension or by the 15th there will be a penalty.

the statement says the payment is voluntary..true,,,but it also says pay or suffer the consequences.

[JohnH]

No, not having a bad day at all. But when you lob a linguistic grenade into the discussion you should be prepared to see one coming back at you.

I think it's important to provide real service to one's clients. You seem to like the word "penalty", but don't seem to have a realistic sense of how relevant it is in this situation. Tax preparation and consulting isn't just about cranking out the numbers, it also involves rational financial analysis and being honest with the clients about all their options. So let's talk about the consequences of the penalty you refer to, especially since there's a big penalty and a tiny penalty which you don't bother to distinguish between.

There's a 1/2 of 1% per month penalty for Failure to Pay, which is equivalant to 6% APR. That's peanuts compared to to the 5% per month Pailure to File penalty. Add interest at about 8% APR and you come up with a monthly cost of approx 1-1/4% combined penalty & interest , which is a total of 14% APR eqivalent cost. Not a bargain rate by any means, but if the taxpayer doesn't have the funds available then it's not a bad deal. For a taxpyer owing $4,000, they might like to know that only paying $1,000 with the extension means they will have to pay about $38 per month on the unpaid balance. (Plus an estimated tax penalty which would have been due even if the return were filed on Apr 15).

IRS is very clever in the way this is described in their instructions. They offer a clear opportunity to avoid the 5% PTF penalty, but then use the tiny 1/2 of 1% penalty to spook taxpayers (and some preparers) into worrying about the underpayment. In reality the true cost of the underpayment isn't a big deal. Paying the equivalent of 14% APR isn't good financial management, but for a taxpayer having some temporary financial difficulty, that may be a bargain.

I think some preparers don't notice the difference or don't take the time to understand it and just allow the word "penalty" to worry them. Others seem to think it's their job to punish the taxpayer for being a procrastinator by insisting that they pay the full tax or else, which really means they're just being deceptive with their client by playing along with the IRS game. Others, like myself, prefer to give the taxpayer the truth and let them make the best decision given their current financial circumstances. So you have to decide where you fall in all this. I like the idea of doing the best job I can for the client, which means giving them all their options.

[taxea]

But you don't seem to have a realistic sense of how relevant the "penalty" is. Tax preparation and consulting isn't just about cranking out the numbers, it also involves rational financial analysis and being honest with the clients abut all their options.

There's a 1/2 of 1% per month penalty for Failure to Pay, which is equivalant to 6% APR. That's peanuts compared to to the 5% per month Pailure to File penalty. Add interest at about 8% APR and you come up with a monthly cost of approx 1-1/4% combined penalty & interest , which is a total of 14% APR eqivalent cost. Not a bargain rate by any means, but if the taxpayer doesn't have the funds available then it's not a bad deal. For a taxpyer owing $4,000, they might like to know that only paying $1,000 with the extension means they will have to pay about $38 per month on the unpaid balance. (Plus an estimated tax penalty which would have been due even if the return were filed on Apr 15).

IRS is very clever in the way this is described in their instructions. They offer a clear opportunity to avoid the 5% PTF penalty, but then use the tiny 1/2 of 1% penalty to spook taxpayers (and some preparers) into worrying about the underpayment. In reality the true cost of the underpayment isn't a big deal. Paying the equivalent of 14% APR isn't good financial management, but for a taxpayer having some temporary financial difficulty, that may be a bargain.

I think some preparers don't notice the difference or don't take the time to understand it and just allow the word "penalty" to worry them. Others seem to think it's their job to punish the taxpayer for being a procrastinator by insisting that they pay the full tax or else, which really means they're just being deceptive with their client by playing along with the IRS game. Others, like myself, prefer to give the taxpayer the truth and let them make the best decision given their current financial circumstances. So you have to decide where you fall in all this. I like the idea of doing the best job I can for the client, which means giving them all their options.

I don't know how I gave you the opinion that I do anything less than the best for my clients. Although, I do agree that there are those that do just as you say.
It is the client's option with everything input on the return, within the law, of course.
I explain, in detail, their options and the consequences of each.