April 5, 2001 - If you haven’t finished your tax return yet and you use a preparer – now’s the time to start thinking about filing for an extension of the deadline, Millian says.

If you prepare your taxes yourself, you may still have time, but if you use a preparer, you may not find one who will guarantee a complete return at this point in the game.

“With less than two weeks before the deadline, there’s barely enough time to complete the return for anyone who is just bringing their information to me now,” Millian says. “I’ll still make every effort to finish the return, but I can’t guarantee it.”

Exact estimates?
But here’s the hitch – to get an extension you have to know what your tax liability is within 10 percent or face a penalty. “So you basically have to prepare your return anyway,” Millian says. “And ten percent isn’t a lot of leeway.”

So you’re going to want to be as accurate as possible in estimating what your liability will be. The penalties for underestimating your liability can be quite stiff, she points out. “If you know you’re going to get a refund, you’re pretty safe,” she says. “But if you blow it and forget to add in a big capital gain from a mutual fund, for instance, that could wipe out your refund completely taking you beyond that 10 percent range.”

If you file for an extension, the government has to grant it provided you’ve paid 90 percent of your estimated tax liability through withholding or quarterly estimates, for instance.

If you end up owing more than the 10 percent limit, however, your extension is automatically voided – which means more penalties. All in all, here are the penalties you’d face:

• a penalty for filing late
• a penalty for not paying on time
• possibly a penalty for not filing estimated quarterly taxes
• And interest on everything to boot.

“That can become very expensive,” Millian says.

If you do file for an extension, you also have to send along a check for any taxes you think you will owe. Once you’ve done that, you’ll have until June 15 to file a complete return.

Going it alone
If you are going to prepare your own return yourself, as opposed to having a professional do it, you may still want to consider filing for an extension, says Millian, who estimates its takes her about two weeks to prepare a client's return.

“Even Turbo Tax (which is the most popular tax preparation software out there) is very time consuming,” she says. “It walk you through a lot of questions and takes a considerable amount of time if you’ve got any complexity to your return at all.”

And if you prepare your taxes the old-fashioned way – with pencil and paper and the tax book – it could take you even longer.

“Unless you’re familiar with the terms and the rules, you can be sent off in all kinds of directions looking for additional instructions on taking a credit, for example, just to find out what they mean and whether it applies to you or not,” she says. “And after an hour of finding the answer, you may find it doesn’t even apply to your situation.”

Millian M. Toms is a Royal Oak-based CPA and business advisor. She is also an active member of the community including The Optimists and Greater Royal Oak Chamber of Commerce. 

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