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Late Payment Interest and Penalties

1040 Extension Returns

There are still a large number of returns on extension that will be filed in the coming months.

Here are some helpful hints:

 

 

In order for ExacTax to compute any late interest or penalties a filing date MUST be entered on Form Pen {5}, zip 4. This is the date through which the penalties and interest will be computed. ExacTax will compute Late Interest (INT) and Failure to Pay Penalty (FTP = 1/2% per month) on the balance due through the date entered.

The Failure to File Penalty (FTF) will also be computed unless an extension code is entered (see next paragraph) or the penalty is specifically suppressed. The filing date is not reflected in the client letter. The letter will instruct the taxpayer to “file as soon as possible” by default unless an extension date is entered.

Note: Form Pen {5}, Zips 19, 20 and 21 are available to individually suppress penalty and interest computations.

To have a filing date print on the client letter (“File your return by October 15, 2014”), enter an extended due date on Form {6A}, Ext section, in zip 2 (default is 10/15/14), and a code 1 in zip 1. This code must be entered along with the date. An entry should be made on Form 6A, Payments, zip 19 or 20 for the amount paid on extension, including zero.

If extension code zip 1 is blank, the Failure to File Penalty (FTF = 4 1/2% per month) will be computed whenever interest and late payment penalties are computed. A date earlier than the actual extended due date may be entered; however, make sure the same filing date is entered on Form Pen {5} for a matching penalty and interest computation.

The amounts computed will be detailed on a Late Filing Interest and Penalty Worksheet. The amounts are printed separately at the bottom of Form 1040, page 2, identified by their acronyms INT, FTP and FTF.

State returns require the same type of entries on the equivalent state forms. For example, on California returns enter the filing date for computing late interest and penalties, on Input Form CAPen {5}, zip 1. Enter the extended due date on Form CAExt section {6A}, California Extensions, zip 2 with an ‘X’ in zip 1. Enter the amount actually paid on extension in zip 3.

Note: Entering the state extension date will automatically trigger late interest and penalty computations on balance due state returns. You can suppress these using zips 3, 4 and 5 on Form Pen {5} in the CAPen section. Other states - see each state’s penalty input form for the interest and penalty suppression boxes.

Recap: 

  1. Always enter a code 1 in zip 1 on Input Form Ext {6A}, the extended due date in zip 2 and the amount paid with the extension in the Form Est section {6A}, zip 19 or 20, including a zero.
  2. Enter the filing date on Input Form Pen {5}, zip 4 to compute late interest and penalties on Form 1040.
  3. Enter the state extended due date, filing date and amount paid with extension on the applicable state input forms.
  4. Check the applicable boxes on Form Pen {5} to suppress penalty and interest, if necessary.