The April 15 tax deadline can sneak up on even the most prepared people, but sometimes it’s even harder for the small-business owner who has a thousand other things to do in addition to filing taxes. It’s possible for owners to file for an extension, but experts say the time to start working on it is now. The best thing to do is to consult with a professional accountant to help prepare supporting documentation, and also remember that one must pay the estimated amount owed at the time of the extension request, or the request will very likely be denied. For more on this continue reading the following article from TheStreet.
Millions of Americans think of April 15 as a day they’d rather stay in bed — submitting taxes is on no one’s short list for a good time. But for thousands of small-business owners, the looming deadline can be almost impossible to meet — with 24-hour-a-day commitments to daily operations and employees, many companies will be unable to wrangle the appropriate documents in the next few weeks.
If you’re thinking of filing for an extension on your taxes, experts say there’s still time to get your things in order, but now’s the time to get to work. Our tax gurus tackle the five most frequently asked questions for filing a small-business extension.
How do you know if you really need an extension or if you should just push on through and try to file by April 15?
"Business tax return filing is a complex and time-consuming undertaking, and, while being prepared to file on the original due date may seem ideal, there are many scenarios where businesses simply won’t be able to file by that deadline," says Matt Becker, tax partner at BDO USA in Greater Grand Rapids, Mich.
For example, some businesses may be extremely busy during the first quarter and may run into situations where additional research and documentation is required, says Deborah Sweeney, chief executive of MyCorporation.com.
"In those cases, filing for an extension can be a great way to buy additional time," she says.
Some cases that may legitimately require additional time could include the need for documentation of charitable deductions or new employee paperwork.
"Some tax return positions require that you have contemporaneous supporting documentation, such as an appraisal that supports a charitable contribution deduction," says Carolyn Linkov, a principal in Parente Beard‘s tax department. "If you don’t have this documentation, you should extend the time for filing your return."
Once you know you need a corporate tax extension, what should be your first steps?
Most businesses will be eligible for either a six-month or five-month extension, depending on how the business is organized. Becker says.
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"There is one major caveat that should be kept in mind while filing for an extension, however. The taxpayer will have to estimate how much, if any amount, is owed in taxes and pay this amount at the time of the extension request. If you fail to take this critical step, the IRS may invalidate the extension," he says.
Corporations should start evaluating their tax liability as soon as the decision is made to file for an extensions, Becker says.
"It will be imperative for you to consider all recent tax law changes as well as this year’s gross income, taxable income, deductions and credits. One advantage of filing for an extension is that a business can spend more time analyzing its tax posture, making sure all available tax benefits have been realized," he says.
With the deadline looming, who should you talk with or meet first?
Business owners should at least correspond with their accountant, if not meet in person, Sweeney says.
"Many accountants are far more e-savvy and they’ll respond to email more expeditiously than in the past, so email communication can work in some instances. When it relates to confidential information, however, some things may be better discussed in person," she says.
Before you sit down for any chats, have your important documents on hand, including those pertaining to revenue and expenses, banking and investments.
"This can be a lot of information for a business, so they elect to file the extension with the thought that they will reap additional benefits from write-offs or deductions they may have missed," she says.
Also, if you anticipate owing federal income tax for 2012, make sure you sit down with leaders in your company.
"Meet with your company’s controller or CFO or treasurer to make sure that there are enough company funds to pay the tax liability," Linkov says.
Typically, should small businesses do their taxes themselves, or should they seek the advice of a professional?
"Small businesses may find that the cost of hiring a professional is quickly offset by the discovery of write-offs and deductions they may not otherwise know," Sweeney says. "Even if the small-business owner hires an accountant one year and thinks they can go it alone the following year because they already know all the deductions, the laws frequently change."
Keep in mind that professional tax preparers can help guide you through some "sticky situations," Linkov says.
"Compliance with the federal tax law requires more than the filing of a tax return for a business. It also requires a small business to know which of its workers to treat as employees vs. independent contractors and what types of issues, transactions and industries the IRS may be focusing its attention on, through an increase in audits or other measures designed to increase transparency in tax reporting. All of these items a tax professional can identify and assess as part of a broader relationship," she says.
Once you file for an extension, what should you look to accomplish in the extra time you’ve been given?
"After filing an extension, it’s important to meet with your accountant and organize your records," Sweeney says. "Organized records will help you identify the sources of your income. You need this information to separate business from non-business income and taxable from nontaxable income. You will also need records to help you remember all of your expenses."
To get a head start on what’s required of you over the next few months, Linkov advises treating your six-month extension "as if it is a much shorter period of time."
"Just because you have another few months to file your return, that doesn’t mean you have to wait until the last day. So make a concerted effort to obtain the documentation or other missing information as soon as possible," she says.
Once your 2012 tax return is ready to be filed, you can use the extra time to start planning for the 2013 filing season — and taking a hard look at what might have gone wrong this year.
"Identify and address areas of your tax compliance and function that resulted in the need for you to file an extension," Linkov says.
This article was republished with permission from TheStreet.