Small business owners around the country were scrambling in the early days of this month, trying to meet an Aug. 15 deadline to file their 2004 returns. They are the taxpayers who didn’t make the original April 15 due date and filed for extensions but somehow didn’t get their returns together — again.
Many of these owners should probably look at how they’re running their businesses and find a way to get their taxes done in a calm, timely manner.
There are company owners who purposely, even strategically, wait for the last minute. Some owners who still need to make contributions to their Simplified Employee Pension (SEP) retirement plan for the previous year file for extensions as a matter of course as part of their cash-flow planning.
But those who habitually spend late July or early August sorting receipts and invoices and filling out Schedule C probably need to find a better way to get their taxes done.
“There is something wrong, whether it’s your filing system, document retention policy or simple procrastination,” said Paul Gada, a senior tax analyst with CCH Business Owners Toolkit, a service based in Riverwoods, Ill.
If it’s your filing system or poor record-keeping, that raises the question of whether you have a good handle on your business itself. In that case, your tax troubles are a symptom of a much bigger problem in your company, because you probably don’t have an accurate picture of your cash flow and whether you’re turning a profit or running at a loss.
If the problem is that you get sidetracked or tend to dawdle, you also need to think about how you’re running your operation.
In either situation, the best solution is likely to be getting some help. Hire a bookkeeper, even someone who works part-time, or contract with a bookkeeping service to help you be better prepared long before April 15.
And since it’s clear you’re having trouble getting your return filled out, that’s a task best delegated to a professional such as accountant or tax attorney. (By the way, if you do have an accountant, and he or she hasn’t been working with you to get your return in, you might want to consider hiring someone who’s willing to keep after you and help you stay well ahead of your deadlines.)
A change in attitude is also in order if you think there’s nothing bad about leaving your taxes until the last minute — there’s a good chance it’s costing your company money. If you owe taxes, you’ll find yourself paying an additional half a percent each month in late payment penalties to the IRS, and your state government may penalize you as well.
Mark Toolan, a certified public accountant with Toolan & Co. in Exton, Pa., said there are other drawbacks to business owners’ putting off filing their returns.
“They’ve missed most of the (tax) planning advantages that could have been done,” he said.
Most professionals look at taxes as something to be considered year-round, not only when it’s time to file a return. They see tax planning as inseparable from a company’s overall strategic and financial planning.
Taking all this into account, there are going to be times when a business owner just can’t get it together. And if Aug. 15 is nearing and your return still isn’t in shape to be filed, the IRS is willing to give you two more months if you have what the government considers special circumstances or hardships. But beware: As the IRS says on its Web site, www.irs.gov, “this extension request is not automatic” — the agency must approve an extension, unlike the automatic extension available for the April 15 filing deadline.
To request the additional extension, you need IRS Form 2688, Application for Additional Extension of Time to File. It can be filed electronically or by regular mail — if you do mail it, your request must be postmarked by midnight on Aug. 15. This year, the extension will run through Oct. 17, two days later than the usual deadline of Oct. 15; in 2005, Oct. 15 falls on a Saturday.