Pharmacy Tax Planning: To File or Not to File an Extension
In this video, Kendell Harris, CPA at Sykes & Company, P.A. talks about legitimate reasons to file an extension on your pharmacy tax return…and reasons why you should not file an extension. Even with an extension to file, you may need to make an estimated tax payment on the original filing due date or face possible penalties and interest.
There are specific situations when you may want to file an extension:
- More time to make a profit-sharing or retirement contribution
- A related entity has gone on extension
- Waiting for clarification on tax laws
If you are filing an extension year after year due to missing information or late year-end financial statements, talk to our pharmacy CPAs to get your financials on track and ready for important tax planning in the fall.
If you prefer to read this content, the video transcript is below.
Kendell Harris – So some reasons why someone would want to file an extension could be because of a retirement plan. For example, profit-sharing plans. You can actually give the profit-sharing contribution for the prior year that just passed, up until the time you filed the tax return. So if you’re in a situation where you’re still saving money to be able to make that profit-sharing contribution, you might want to file an extension to give yourself more time to make that contribution.
Another reason why someone might want to do an extension is maybe they are invested into maybe a different entity and that entity is gone on extension. So you don’t have a final K1 or a final interest statement or you don’t have the information you need to be able to file on time. So because of that you will have to wait until that entity files and you get the flow-through information. So that would cause you to file for an extension also.
And in some situations, like we’ve seen in the past few years, the states have changed their tax laws or there have been different programs to help out throughout the pandemic. And how those programs are treated for tax purposes were not finalized by the time the tax return was due. Therefore some have chosen, instead of filing and then going through the possible amendment, they have just decided to wait it out until the laws were finalized. So they’ll file an extension and give them more time to wait for the law to be passed.
Which reasons are not legitimate for filing an extension?
Yeah, great question. Well, the top reason I hear a lot of people think about filing for an extension because they don’t want to pay. An extension of time is an extension of time to file, not an extension of time to pay. Therefore, if you have a large tax bill that is due, you still need to make an estimated payment with your extension in order to avoid taxes that can accrue interest and also other penalties on top of those taxes. So if you’re thinking of, “I’ll file an extension so I don’t have to pay right now,” that is not a legitimate reason.
Another reason why someone might think is good to file an extension, but I wouldn’t recommend it is, “Well, I file an extension every year, especially because my year-end numbers are just not ever ready by the time I need to do my tax return.” That’s something that you really need to consider because that could be a red flag that you are not getting monthly financial statements done in a timely manner. Therefore, you don’t know how your pharmacy is doing. And then at the year-end if it’s time to file, but yet you still don’t know the performance of your pharmacy for the prior year, you are probably going to get a surprise tax bill because you don’t know how you are performing.
So if you are in one of these situations where you are filing an extension year-in and year-out or you are getting surprise tax bills, then now would be a good time to call Sykes & Company, P.A. We do our tax planning and we do monthly financial statements so that you will know where you are at come October and November instead of filing an extension every year.
So feel free to give us a call. We can assess and see where you are at and how we can help you going forward.
