It’s easy to make the unfair assumption that if a business decides to file for a tax extension, the leaders have been spending the months leading up to the April 15 tax deadline procrastinating on their paperwork. But that’s not necessarily true.
Rather than rushing to file in a hurry, a business tax extension is a major asset in a company’s corner as it means getting extra time to prepare and file properly. But what does being granted a tax extension for your business mean and what do you need to know when you decide to file for one?
Get your deadlines in order
Typically, the IRS approves business tax extension requests so long as they are submitted by 11:59 p.m. on April 15. They will grant you six more months to work on your taxes. Use Form 7004 (Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns) on the IRS’ website and e-file or send the form along by mail.
For companies organized as corporations and partnerships, be sure you have the correct deadline in place for when your returns are due.
The extended deadline for calendar year 2013 S corporation returns is Sept. 15, 2014. Not extending this deadline to file may cause your S corporation to owe a 5 percent penalty of unpaid tax for every month the return is late with a cutoff point of 25 percent.
Partnerships, with extended deadlines, have 2013 returns that are also due on Sept. 15. Failure to file on time can result in owing penalties of up to $89 a partner each month the return is behind, for a maximum of 12 months.
Talk to your accountant
Email and meet up with your accountant to evaluate your tax liability and any other confidential information. Be sure to bring along any paperwork that concerns banking, investments, expenses and revenues.
Even if you feel confident that you can handle working on your own taxes, federal tax laws are constantly changing. An accountant may find some deductions and write-offs you wouldn’t have known about otherwise.
Make extensions part of your tax strategy
NBCNews.com mentioned that for businesses that need more time to contribute to a Simplified Employee Pension Plan, filing for an extension can actually be extremely beneficial. An extension on Form 5305-SEP (Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement) means that the extra time ensures the business doesn’t need to have the money in place until the due date of the tax returns.
Use your extended time wisely
Filing an extension puts you at much less risk of facing an audit than will rushing to get your forms finished by April 15. It’s important, however, to bear in mind that once you file for an extension, you need to stay organized and focused on getting your taxes filed. If you’re missing any documents, work on obtaining them as soon as possible so it makes the filing process smoother. ●
Name: Deborah Sweeney
MyCorporation.com is a leader in online legal filing services for entrepreneurs and businesses, provides startup bundles that include corporation and LLC formation, registered agent, DBA, and trademark and copyright filing services. Deborah writes about issues that affect companies of all sizes and shares tips that she has found to be useful in her own business endeavors.