Is There a Tax Extension in Your Future?
The last days of the 2012 tax year are quickly winding down. According to the Washington Post, there are approximately 10 million businesses and 5 million individuals who file tax extensions annually. If you haven’t completed your deduction and expense gathering for your accountant, a tax extension may be in your future, too. The IRS allows business owners an additional six months to prepare tax documentation as long as the request is prepared completely and on-time – you don’t even need to provide a reason for requesting the extension.
Here’s what you’ll need to do to file the extension while still working toward that meeting with your tax professional:
1. Call your accountant or tax professional. Contrary to public belief, tax professionals are not mind readers and do not keep your number on speed dial for that late-night April 14th phone call when they haven’t received your documentation. These knowledgeable ladies and gentlemen are busy people this time of year. Don’t assume that your lack of preparedness is on their radar. They will be more than willing to help you out of your procrastinated tax dilemma by preparing your extension, but you need to reach out and let them know about your situation.
2. You’ll need a few pieces of financial data, if possible. Have your basic business information ready including approximate profit/loss, deductions and capital expenses, and any additional income (such as 1099s you may have received). Your accountant will then be able to put together a brief estimate of taxes owed, if any, so you can make a payment with the extension documents.
3. Make an estimated tax payment. Filing an extension does NOT preclude you from paying taxes, penalties or interest that are due for the previous year. In fact, interest and penalties will begin to accrue beginning on April 16, 2013 and will increase on a scheduled time table until you make a payment and file your tax documentation. Paying an estimated amount will help you avoid excessive interest and penalties while you continue to gather your tax information and meet with your tax professional.
4. One extension or two? Some states have a reciprocity agreement with the Internal Revenue Service that if you file a Federal Tax Extension, they will approve you for a state extension at the same time. Bear in mind, that this is not the case in all 50 states, so again, talk with your tax professional when you file your federal paperwork to verify that state extensions are also required.
5. Schedule a full tax appointment for May or June. Don’t just file the extension and then forget about the taxes again until the October 15, 2013 deadline. Schedule a meeting with your tax professional for May or June so that you will have a clear deadline for gathering your tax documents and an opportunity to review them with your tax professional. He or she can then ask you questions about your business, review your expenses and deductions and provide you with a list, if needed, of any missing or necessary documentation. After the initial set of taxes are complete, schedule a follow-up meeting to help set your business on the right track for 2013’s business taxes so that you can take better advantage of tax and small business opportunities and be proactive in your decision making.
Taxes can be overwhelming. Rather than allowing your small business’ finances to snowball, take the time now to do a little organizing and breathe. No matter what the situation, there’s a Professional Association of Small Business Accountants (PASBA) tax professional that can prepare your extension and then schedule a time to meet with you and help you better understand and prepare for future tax years.
PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.
Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.
Copyright Information 2013 Professional Association of Small Business Accountants