The last weeks of the tax filing season can be dicey for small business owners if they're just starting to get their returns together. Anyone who is just now booting up their tax prep software or pulling together papers to take to the accountant might want to think about getting an extension of the April filing deadline.
Getting an extension is quite easy; it's a matter of filing a short form with the IRS and, if you're going to owe taxes, estimating what your bill will be and paying it.
The great myth about extensions is that they are a flag to the IRS that make taxpayers vulnerable to being audited. Tax professionals say this myth has no basis in reality _ an estimated 9 million taxpayers receive extensions each year, and the government doesn't have the resources to audit all those people.
"Nobody gets audited in May," said Mark Toolan, a certified public accountant in Exton, Pa. "Possibly a year afterward, they (the IRS) scan the returns in" and then the decisions about audits are made.
What does set off an audit? For a small business owner, the problem often comes down to income or expense levels that don't fit what the IRS would expect your business to have.
Many small business owners routinely file for extensions, not because they're running late, but because it's part of their tax strategy. Those who want more time to contribute to a Simplified Employee Pension, or SEP plan, can do so using an extension, because they don't have to come up with the money until the due date of their tax returns _ including that extra time.
If you want an extension, you need to file IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, with the IRS. You can do this electronically or by regular mail. If you choose this latter option, be sure you send the form in by midnight April 17 (you get two extra days this year because April 15 falls on a Saturday) and get a return receipt.
Do that, and you have six months, until Oct. 16, to get your return in. Until this year, you could only get a four-month automatic extension, and then had to appeal to the IRS for another two months. But in a move that saves taxpayers and the government time and money, the tax agency has restructured the extension process. So Form 4868 gets you the full six months.
You can download Form 4868 from http://www.irs.gov if you want to file by regular mail. It's also included in tax prep software, and you should be able to e-file it from your PC. Alternatively, a tax professional can do it for you.
You need to be aware, however, that an extension doesn't relieve you of the responsibility of paying your tax in April; the government requires that you make a good-faith estimate of your liability. If you have the money, you need to pay it (you can use credit cards if you e-file). If you don't have the money, be prepared for late payment penalties and interest.
If you've decided that you don't want to go the extension route, and just want to get your taxes over and done with, you need to devote some time to really focus on this task. Mistakes on your return _ easier to make if you're rushing at the last minute _ probably won't trigger a full audit, but you can get a letter from the IRS pointing out your error. If the mistake meant you underestimated how much tax you owe, that could cost you in penalties and interest.
You should be honest with yourself about whether you can get the job done well _ if your records are in chaos and you're trying to close a big deal with a client, perhaps an extension is the best option. You might get the excellent idea that you need a tax professional, but be forewarned that at this point in the season, most CPAs and tax attorneys aren't taking on new clients with complicated returns.
They'll probably recommend filing for an extension and offer to work on your return after the crush is over.