Planning Idea Re 1st Qtr Estimates & Extensions

[dascpa]

If you know the client is going to file an extension for May 17th, add the 1st qtr estimated tax payment to the extension amount and don't worry about the April 15th deadline.  Just carry over the overpayment to the 2021 return and it will be covered.  Or if they don't owe for their extension, the same procedure will still work.

[rbynaker]

It's a solid plan, I don't know if it'll work but I have two more weeks before I have to care.  I *think* the right answer is that the 2020 tax gets applied FIFO to the 2020 payments, then what's leftover should keep it's "payment date" character when moving to 2021 (so 5/17/21).  In reality, I don't know if the IRS computers know that.

Worst case I might have to cover a month's worth of underpayment penalty from 4/15 - 5/17 and we won't even know about that for at least two years.  Other than a few chronic "don't care about paying the penalty" clients, I almost always suppress the 2210 calculation and have the IRS send a bill.  There seems to be a threshold somewhere below which they just don't care.  I don't know where that is, but I'm not going to have a client volunteer $50 in interest if the IRS doesn't want it.

[dascpa]

I have used this method for many, many years without an issue.  But I do it for a different reason.  If my 2020 projection for the extension was too low I have extra money paid in to cover any penalties.  If all goes as planned then we carry over the overpayment to the next tax year estimates.  A simple way to cover ourselves.

[IRonMaN]

Yeah, I was taught the idea of having the extension cover the first quarter estimate back in 1493 or 1494 - it's been awhile so I forget the exact year.

[rbynaker]

I do it as well, and I agree it's a great strategy when the extension due date is the same as the 1st qtr estimate due date.  Making a 4/15/21 payment for 2020 and applying it to 2021 is the same as making a 4/15/21 payment for 2021.  I'm not convinced that making a 5/17/21 payment for 2020 and applying it to 2021 will count as a 4/15/21 payment for 2021.

I have yet to see an official announcement from the IRS detailing which "tax acts" are being extended.  They are presumably using the "disaster area" authority under 7508A which references a long list of "acts" that may be extended for combat troops per IRC 7508.

But then, my brain is mush and I can't seem to comprehend the meaning of 7508A(d) titled "Mandatory 60-day extension" and how that might interact with the 32-day extension we've been told via press release.  I'm sure the answer's in the Regs somewhere.  Or maybe politicians are just making this stuff up as they go without regard to actual laws.  I'm convinced I don't understand what the rules are when Congress feels it has to ask the IRS Commissioner for the extension of a deadline THAT WAS SET BY CONGRESS, and they feel they have to do this the same week that they passed a 242 page law which included changes to the Internal Revenue Code.

[abctax55]

I'll find the details on a different list-serve... but based on what's been said there (by some veddy, veddy smart folks) that strategy does NOT work.   Unless they extend the April 15th estimate deadline (like they did last year...) there would be a penalty for the 30 +/- day differential.

Which, probably isn't material or significant for most folks.   

I do have one client where it would be though.

Edit, best I can find right now.  Those of you that know Kip's background will take his comments to heart:

If the overpayment existed at April 15, then it may be applied to the April 15 E.S.  This is different than making an extension payment AFTER 4/15 that creates a refund subsequently applied to the 4/15 estimate. 

The statute under Section 6654 should be read in conjunction with the principles set forth in Revenue Ruling 84-58 (which I do not believe has been superseded)

Kip Dellinger, CPA

[qbteachmt]

"add the 1st qtr estimated tax payment to the extension amount"

The first Est payment due date has not been changed. It's still due April 15.

[abctax55]

No one is questioning that fact (4/15 for estimate).

The question is whether an overpayment made on 5/17 extension, then 'retroactively' applied to 4/15/21 when filing the 2021 return is considered timely.  

[rbynaker]

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@abctax55 wrote:

I'll find the details on a different list-serve...

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Let us know, please.  I've converted most of my clients to DirectPay so I have no problem waiting two more weeks for the IRS to get their act together.  Then I blast out a bunch of emails telling clients to pay $x by xx/xx/21.  At this point I'm still just trying to get through whatever's in front of me!  It's usually around 4/1 that I switch to triage mode and figure out who absolutely needs attention before 4/15.

Ugh.  Seems like everything I pick up this year has some sort of curveball.

1) Bought a house with his brother for mom to live in, in a different state, they contributed radically different amounts but he somehow thinks he owns 50% of it.

2) Grandma cashed out a 529 plan for $15K that I didn't even know existed except she included a 1099-Q this year.  Money went directly to her instead of beneficiary.

3) Seems like everybody is carrying over 125 plan dependent care this year.  W-2 #10 has $5K, they give me $2K of expenses.  Oh, turns out they never submitted anything to the plan administrator and the entire $5K carried over to 2021.

4) So your 24-yo graduated college in 2019 but still lives with you? [yes]  How much did he make?  [I don't know]  Can we call him?  [Sure . . . he said he made about $2,200 working for Pizza Hut but made about three times that working construction but it was all under the table so it doesn't count.]  No problem, I'll remove him as a dependent.

I need a vacation.

[qbteachmt]

"but made about three times that working construction but it was all under the table so it doesn't count.] No problem, I'll remove him as a dependent."

While also collecting four times that as UI.

I'm astonished at how many people pulled out all retirement funds, even those that got decent UI. And of course, many of my small employers are now having trouble collecting the deferred SS. They cannot believe they will need to pay it, anyway.

[abctax55]

I need a vacation...

Where shall we go- I'm ready too.

Rick - you saw what I added?

I'll send you the link to that list-serve (when I find it, when I can...) off-forum; I think you have to be approved to join (hey.... Intuit.... what a novel idea !!!!!)

[IRonMaN]

"Seems like everything I pick up this year has some sort of curveball."

The curveballs haven't been so bad this year, it's been all of those spitballs that have been the problem.

[RCBCPA]

Take the vacation. Treat April 15th as the due date.  Conservative is the best way to go.