MyCorporation.com CEO Deborah Sweeney explains why, when and how small business owners need to apply for tax extension.
Note: This post has been updated for this year’s tax season.
Once again, we find ourselves nearing the end of the road for tax day on April 17. If, as a small-business owner, you find yourself a little behind this year on being able to get paperwork organized and submitted on time, you should consider filing for an extension. This does not mean you magically get out of paying your taxes at the normal, designated time. But it will buy you some extra time to properly file your return.
If you’ve never filed for an extension before, below are five reasons why it’s a good idea. (And if you think you can just bite the bullet and cram in order to get everything in by the deadline, I strongly suggest you read this).
1. You’ll have more time to do it right.
An extension allows you to take a breath and properly organize your tax deductions. This is a process that is best accomplished when calm, cool and collected. It’s easy to feel rushed to get tax returns finished by the deadline; taxpayers and accountants alike can make mistakes when under pressure. With an extension, you and your accountant get extra time to go over the return and make sure everything is complete and double-checked before sending in your documents.
2. You’ll hopefully avoid a late-filing penalty.
Being unable to file your taxes on time generally results in a delinquent penalty which is 5% of the unpaid tax due for every month that the return is late. It may not sound like much but trust me – these percentages add up and may vary from state to state. If you file for an extension and then file by the extended deadline, you get to avoid the late filing fee and the added interest that may be included.
If you file an extension, there’s a good chance you’ll be able to catch your accountant at a time when their services will be cheaper and consequently they’ll have more time to work with you.
3. You might reduce your tax preparation fees.
Accountants have been known to raise the cost of their services right before the tax deadline. It’s an obvious supply-and-demand business move and we can’t exactly blame them for it. But after tax season passes, the price goes down again because the accounting office slows down once more. If you file an extension, there’s a good chance you’ll be able to catch your accountant at a time when services are cheaper and he or she will have more time to work with you.
4. You’ll be able to make good choices with that extra time.
There are lots of decisions that need to be made when filing taxes. You may decide on whether to depreciate equipment, or take certain deductions, or whether to carry forward or back any business losses. By filing the extension, you’ll have more time to focus on what’s best for your business….and that’s a process that deserves a hefty amount of planning and thinking ahead.
5. You’ll find that it’s easy to file for an extension.
You can do it on paper or file online through the IRS application for automatic extension of time form. With an online form, you get the benefit of receiving a confirmation code from the IRS right and you can check in easier to ensure that your request went through. An important point to note: This form does not extend the time to pay taxes and you must make a payment of your estimated taxes by the regular due date. But it’s a simple — and advisable — way to avoid running into problems with the IRS.
Posted: March 17, 2015