Kathryn Tuggle for The Street writes: 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.
"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.
Friday, March 22, 2013
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