I dont do many extensions, do I have this right?

[Just-Lisa-Now-]

Client is a realtor and made over 200k in 2024, his bookkeeping is kind of a mess and were missing some stuff, in 2023 his total tax liability was $7000.

If he sends an extension with $7000, and then ends up owing another $15k on the return, that extension and payment avoid any penalties for him, right?

[IRonMaN]

Nope.

[abctax55]

He has to pay what is guestimated as owed WITH the extension to avoid late payment penalties and interest.  

The extension is just to avoid late *filing* penalties, not the late paying ones.

[Just-Lisa-Now-]

Well crap...ok I gotta do some more work then

[rcooley25]

The extension is and extension of time to file and not an extension of time to pay Lot of people make the mistake and think if they fie and extension they  can wait untiel

l Oct. 15th to pay the tax and this is simply not true.

[Just-Lisa-Now-]

So it saves him from the failure to file penalty and the estimated tax penalty if he pays in 100% of what he owed last year, but it doesn't clear him from the failure to pay what might be due for 2024.

Saturday morning work is gonna dip onto Saturday afternoon I guess!

[abctax55]

If he's last minute dude, don't ruin your Saturday.  Guess high, or just let him tell you what he wants to pay.

AND - his first estimate is due Tuesday also.  IF he cares.

Word of advice, I usually include the first estimate amount with the extension payment with the anticipation of the overpayment being applied.  That way, if the guestimate is wrong, 2024 is covered and only the 1st qtr 2025 estimate is (possibly) low.  

[dascpa]

abctax55 - Word of advice, I usually include the first estimate amount with the extension payment with the anticipation of the overpayment being applied.  That way, if the guestimate is wrong, 2024 is covered and only the 1st qtr 2025 estimate is (possibly) low. 

Yup, been doing that for years. Client's still don't understand it but it has sure saved them penalties when the projection is too low. 

[BobKamman]

When I was a young man I went to real estate school, just for the fun of it.  Passed the exam but never activated the license.  One thing I learned from the instructor -- this was back before they started "teaching to the book" and leaving out any practical advice -- is that real estate agents spend their earnings three times.  Once when they get the listing, once when they get the sales contract, and once when the deal closes.

If an agent made $200K in 2024, it may be his last good year for a while.  They have changed the rules for that occupation, and commissions are dropping faster than sales.  So I wouldn't worry too much about the first quarterly payment for 2025.  I doubt there's enough left to cover most of 2024 tax.  

[abctax55]

AND.... if no closings thru 3.31.25 there isn't anything due on 4.15.25 for Q1 of 2025 if annualizing is used.  

[Norman2001]

If his AGI is $150,000 or more, it's 110% of his prior year tax liability. 

[qbteachmt]

The Safe Harbor not only has the 90% rule, the 100% rule, the 110% rule. It also has a timeliness requirement. The safe harbor needs to have been paid by any combination of withholding and estimates. Estimates need to be timely. Withholding is considered to be "for the year" and not by quarterly. This is one reason I put seniors with investment income on Social Security withholding, so they can meet safe harbor and not worry about missing estimate due dates.