A tax deadline is fast approaching for some small business owners: Oct. 15 is the last day to submit returns for those who got an automatic extension of the filing date back in April.
Owners who are still scurrying around trying to get their returns together need to do two things: Slow down, and get the job done right. And start thinking about finding a better way to keep track of company finances going forward.
When a small-business owner is still struggling to get a tax return together at this late date, usually “it’s a sign of improper record-keeping,” said Mark Toolan, a certified public accountant in Exton, Pa.
That’s going to make it hard to finish a return now. But if it’s tempting to just let the deadline pass and file late, tax professionals will tell you that’s a bad idea.
“All kind of nasty things happen,” including steep late-filing penalties when you don’t meet the deadline, said Walter Goldberg, executive director of the national tax office for the accounting firm Grant Thornton LLP in Washington, D.C.
So you should do the best you can to put together as complete a return as possible and, critically, give the IRS as good an estimate as you can of what you owe.
“The IRS will generally accept a return that you have estimated as long as it is reasonable and made in good faith,” said Mel Schwarz, a partner at Grant Thornton.
If you don’t have all your information together, you can always file an amended return later. As Goldberg noted, “that’s better than not filing.”
Many taxpayers fear that an amended return can raise their chances of being audited. But, Toolan said, that shouldn’t be the case if there’s a legitimate reason for an amendment.
Another reason why owners procrastinate is they don’t have the money to pay the government. That’s a bad reason not to file.
“There are payment alternatives that taxpayers can work out with the (Internal Revenue) Service after the fact,” Goldberg said. “You should make your best guesstimate, file the return and pay as much as you can and avoid penalties that way.”
Late-payment penalties are much less onerous than late-filing penalties.
Jeffrey Chazen, a tax partner at the accounting firm Eisner LLP in New York, said many business owners — in particular those who are just starting out — are torn between other creditors and the government and opt to forgo their tax payment.
“They think, ‘I just won’t pay Uncle Sam.’ That’s not the right person not to be paying,” he said.
Some last-minute filers actually have a sound business reason for waiting — they use the extension as a cash management tool that allows them to fund retirements plans such as SEPs, or Simplified Employee Pensions, up until the filing deadline. These owners need to remember to make those contributions by Oct. 15.
Once your return is finally filed, it’s time to think about getting better organized. You’re probably going to need help — simply because it’s clear that you’re struggling to get this most basic of business tasks accomplished.
So you should consider a visit to a tax professional and you should also think about hiring someone to help with record-keeping, if that has been your problem. Toolan recommends the structured accounting system that business software provides.
Owners who have sloppy records really need to get organized — with 2007 more than nine months over, they’ll be looking at another chaotic filing season come the spring unless they change their ways now. Poor record-keeping often means not having a good handle on how the business is doing.
“Which is worse — dealing with it over time or pushing it off till the last possible moment?” Chazen asked.
And, even if money is tight and you’re afraid you won’t have enough to pay your tax bill, “try to be on top of this stuff. … Know where you stand,” he said.
Joyce Rosenberg writes about small-business issues for the Associated Press.
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