These are anxious times for some small-business owners who face an Oct. 15 due date for their 2008 income tax returns. These owners got extensions of the deadline for filing their returns back in April but aren't ready to file. Or, they can't pay the government the money they owe.
Some of them are just disorganized. Others might be having a cash flow crunch.
No matter what the problem is, if you're one of these owners, you must submit your return by the deadline or face big penalties for late filing. And not filing your return will only prolong the agony.
If your issue is disorganization, it's time to rethink not just how you're running your taxes, but your overall business. And maybe more than that.
"My observation of these types of people is that it's not just their business that runs this way, it's their life," said Gordon Spoor, a certified public accountant in St. Petersburg, Fla.
Despite the availability and simplicity of software that helps small businesses keep their books and compile their tax returns, many of these owners have piles of receipts, invoices and statements that they bundle up and take to their CPAs or tax lawyers each year. Tax professionals call these owners "shoebox clients," and many preparers don't want to work with them, especially since they tend to show up right before the filing deadline looking for service.
The solution for these owners is clear: Get help, either from software, or get someone else to help you keep your accounts year-round. There are good, even critical reasons for doing this. Spoor pointed out that a CPA who charges a client $300 an hour for tax prep will also charge $300 an hour to sort through piles of receipts and invoices. That is money badly spent.
Dealing with disorganization
Moreover, a disorganized owner often doesn't have a good handle on how the business is doing, and that could be a threat to the company's survival.
Some business owners just don't want to work with computers. Gregg Wind, a CPA with Wind Bremer Hockenberg LLP in Los Angeles, suggests some easy, low-tech organization tips: "If you do nothing else, set up folders and drop invoices in there."
The good news is there is still time to sort through the paper, input the data into a program and get it to a tax professional. It may take a day or two, but it'll save money in the long run.
If your papers are so disorganized that you have many missing checks or invoices, or can't figure out which receipts go with which payments, do the best you can. But be up-front with the government and tell the IRS you're filing an estimated return. You can always amend it in the future.
Spoor recalled the case of a client whose disorganization, the result of serious personal problems, extended back more than a decade. When the client, who hadn't filed returns during that time, decided to settle up with the government, many of his records didn't exist.
"We constructed estimates based on what we knew," Spoor said. "The IRS accepted it."
Oct. 15 is generally a hard and fast deadline for filing a return if you've had an extension. The IRS has been known to make exceptions in some cases, but Spoor noted, "being a disorganized small-business owner is not a reasonable cause."
Wind noted that e-filing, or submitting your return to the government online, can buy you a little more time.
The IRS is quite clear on its Web site about the reasons you should file your return on time. "If taxes are owed, a delay in filing may result in penalty and interest charges that could increase your tax bill by 25 percent or more."
The government does recognize that not everyone can afford to pay their taxes right away. While it will charge interest on taxes not paid on time, it is willing to work out a payment schedule.
If you owe the government $25,000 or less in taxes, penalties and interest, you can apply to set up an installment agreement. There are several ways to do this. One is to download and complete IRS Form 9465, Installment Agreement Request. Or, you can use the Online Payment Agreement Application.
However, if you can pay the IRS your entire bill within 120 days, the agency says you can avoid the fees for setting up an agreement. You need to call an IRS toll-free number, 1-800-829-1040 to arrange for this option.
If you owe the government more than $25,000, you may need to complete Form 433-F, Collection Information Statement, which asks for information including your assets, liabilities and income.
Whatever the reason for an owner's Oct. 15 anxiety, it's a good idea to meet with an accountant or other financial adviser to figure out how to prevent it from becoming an annual occurrence. Since the year is nearly three-quarters over, "people should be thinking about getting organized for next year's tax planning," Wind said.
"And if they're going to talk to a CPA about 2008, they should spend a few minutes talking about 2009," he said.