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How to File Tax Extensions and Avoid Tax Penalties (don't worry about underpaying again!) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- Hey guys Toby Mathis here.
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And today we're going to talk about taxes.
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More specifically, we're going to talk
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about two different types of
ways that you pay your taxes.
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So the first way is if you
owe more than a $1000 of tax
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in a particular year,
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you're supposed to be paying as you go.
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A lot of you guys are W-2 employees
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so it gets withheld from your paycheck.
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But what if you don't have it
withheld from your paycheck.
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What if you owe more money
'cause you have a gig job
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or you're running your
own gig on the side?
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Maybe you're an escort.
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Maybe you have extra taxes
that you're going to owe
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at the end of the year and you know that,
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then you do what's called quarterly.
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And so I'm just going to put
them down here real simple.
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We have quarterly and
then we have the annual.
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Most people are familiar
with the annual, right?
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We know that every
year, there's a tax time
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that comes around and it's April 15th.
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For 2022, when you're going
to file for your 2021 taxes.
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So this is tax year or this is 2022
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as we're sitting here.
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So we're coming up upon the tax season,
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and that's actually April 18th
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'cause we have a weekend involved.
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All right, so this is why
this is really critical.
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If you had taxes that
you had to pay in 2020,
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there's a good chance
you had quarterly taxes
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that were owed throughout the year.
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If you had extra income that
came in on a side gig this year
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and it was more than a $1000 tax of owing,
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you would've been required
to do quarterly taxes
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during the tax year of 2021.
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Like you would've paid taxes each quarter.
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Now here's the funky thing,
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quarterly taxes are done differently
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than like every three months.
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Everybody thinks it's always three months.
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It's not quite that.
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So it's January it till the end of March.
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It's April through the end of may.
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It's June to the end of August.
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And it's September through
the end of December.
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Quarter one, two, three, four.
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That's when those taxes are actually due.
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So this is what's funky.
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If you don't pay your taxes,
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if you skip a quarter or whatnot,
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you can actually have penalties
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even if you pay your taxes on time.
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That's what weird.
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But there is a get out of
jail card that you have.
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And it's going to depend on
whether your adjusted gross income
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is above 150 or below 150.
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So I'm going to say
below 150 and above 150K.
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The way it works is they
take a look and they say,
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hey, you're safe no matter
what under either one of these
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if you paid 90% of the year's taxes.
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So if you paid 90% of
your quarterly taxes,
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you don't have to worry
about any penalties
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with quarterly taxes.
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So if we divide up into quarters,
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what you were supposed to
pay and you paid 90% of that,
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you're safe.
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So 90% and I'm going to
use the tax year 2021
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just to make it simple.
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This is what you actually
have for the year.
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If it's less than 150,
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this next rule is a little
bit easier to understand.
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If it's less than then you
could have paid 100% of 2020
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and still of avoided the penalties.
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So let's say that I had
in 2020, I owed $20,000,
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in 2021, I owed $30,000.
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As long as I paid in quarterly, $20,000,
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I do not have to worry
about quarterly penalties
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because I paid 100% of my 2020 taxes.
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I paid the same amount I paid in 2020.
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If I had a tax bill that was less
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and or more for that matter
and I paid 90% of it,
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I'm also good.
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If I'm above 150,000,
it's slightly different
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then I have to pay 90% of
this year or 110% of 2020.
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So the last year I filed
taxes and I know that number,
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let's again say it was 30,000,
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I would've to pay $33,000 in
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to not worry about any quarterly taxes.
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Now, I don't have to worry about that.
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Now, we worry about the annual tax amount.
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And so this takes us all
the way up to April 15th.
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That's all this relates to.
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So here's how it works.
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I have to worry about filing an extension.
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Let's just say that you're
like most of our clients
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where we have investments in things.
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And our recommendation is
that even though the taxes,
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taxes for 2021 are due on the April,
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it's actually 18th of this year.
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Even though the taxes are due,
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we don't know exactly
what they're going to be.
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A lot of times syndicators
are changing their K-1s.
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You might not know your numbers.
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We recommend that October 15th
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be your your actual filing date.
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But your taxes are due on this date.
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And we might not know what the taxes are.
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For all we know, you've had a banner year.
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And instead of like, let's
say you owed $30,000 in 2020,
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you could avoid the penalties there
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by paying a hundred percent
or 110% of that amount.
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But this year, maybe
you're going to owe 50.
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So we avoid any penalties and interest
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by making sure that we follow this rule
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but then we still are going to owe taxes.
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So here's what my recommendation
is for everybody out there.
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What you do is you take
your quarter one payment,
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see this guy right here, your January
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through your March, it
would be due on April 15th
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for this year, April 18th.
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You take that payment,
whatever it would be,
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that quarter, and you file
it with your extension.
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You make it a payment with
your extension, right?
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And the reason you do that is
because worse case scenario,
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if I don't owe that tax,
you're not asking for a refund,
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we just reapply it to the
quarter, first quarter of 2022.
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So you're making that payment,
knowing the money's gone.
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It's going to stop you from
having any penalties for 2021.
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And we still have our safe harbors
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that we can still go into for 2022.
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So first quarter 2022 tax,
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I'm just going to call it first quarter,
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whatever that amount would be,
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it's just the dollar amount,
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we're going to apply it
to our 2021 extension.
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So we're going to file an extension,
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we're going to make a payment.
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It's going to be whatever
that quarterly it was.
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So let's just go back to
we had $30,000 in 2020
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in my example so we'd
cut that up into quarters
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so it'd be $7,500.
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You would pay a $7,500
check just to be safe,
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to make sure that you did it.
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Now, if you know, what amount
of revenue, extra revenue
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you created and you have a good idea
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of how much income you're going to have
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then we can estimate how much to pay.
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But as just a matter of
course, like if you don't know,
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and it might be more and
you're a little bit worried,
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make that first quarter payment
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but apply it to your extension.
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File it with your extension,
apply it to your 2021 taxes
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so that it is applied to the 2021 taxes
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so you don't have any penalties
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'cause we still have time
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to be in one of these
safe harbors for 2022.
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I hope that makes sense to you.
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So those of you guys who are out there
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who are used to doing quarterly payments,
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all we're doing is saying,
hey, you know what?
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Let's just make a fifth quarterly
payment for our last year
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just in case we owe and we
know that that money's gone.
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It's either going to be
applied to my 2021 taxes
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to make sure I have no penalties
or it's going to be applied
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to my 2022 taxes.
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Either way that money is
gone, go to the tax man
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and it's going to pre vent
me from having any penalties.
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There's no late filing penalties
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'cause we filed an extension.
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There's no late filing
penalties over here.
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We're in a safe harbor so that
we can avoid the penalties
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that come from failing to make
a payment when it was due.
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But this is the most attractive mechanism
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that I can think of
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and that our tax team can think
of to make it easy for you
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if you're going into a tax season
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and you're worried about underpaying
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and you don't know what to pay,
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I would just say, make
another quarterly payment
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or whatever it was for last year,
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make another quarterly
payment in the first quarter.
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But instead of applying it
to the first quarter of 2022,
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apply it to your extension for your 2021.
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If it ends up being that
you didn't need to do it,
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we will apply it to your first
quarter of your 2022 taxes.
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So for those of you out there
who are doing your extensions,
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this is an easy methodology.
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When in doubt, just make whatever
the first quarter would be
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but apply it to your extension payment,
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and therefore you can avoid
getting hit with any penalties.
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