Every small business owner knows that the months between January and April are a hectic and stressful time. With so many factors that go into your business taxes, it can be tempting to apply for a tax extension. Before you do, it’s worth your time to look at both the pros and the cons of filing for a tax extension.
A tax extension is just what the name implies: it is the official way to petition the IRS for additional time in preparing your business’s yearly taxes. By filling out a form 4868, you can apply for your business’s filing deadline to be moved from April 15th to October 15th.
Requesting a filing extension can be extremely helpful for new business owners trying to sort through the complexity of business taxes. It is also helpful for established business owners who’s assets have added additional complexity to their overall financial picture. The chief benefit comes in the form of extra time to properly account for yearly deductions.
Other benefits of filing for a tax extension include:
• Your business hasn’t received all the necessary tax documents yet
• Helps you avoid late filing penalties
• Can give self-employed business owners additional time to contribute to certain types of retirement plans
• Can increase the accuracy of the return and reduce professional accountancy costs
While there are a good amount of advantages to pushing back your filing deadline, tax extensions aren’t without their drawbacks. The biggest concern is taxes that you owe. Just because you apply for an extension doesn’t mean that you have extra time to pay your taxes. Exercising a deadline extension often means penalties and interest. Business owners who do file for an extension need to be aware of that fact, or they may be in for a nasty surprise.
Other drawbacks for applying for a filing extension include:
• Spouses cannot change their filing status after the initial April deadline
• Some retirement accounts, like traditional IRAs cannot be funded during the extension period
• The change might cause the IRS to confuse your filing requirements
If your business is not required to file a return, applying for an extension negates that and forces you into filing taxes anyway, costing you time and money.
Filing for a tax extension can be a lifesaver for small business owners. It can mean the difference between hastily prepared tax returns resulting in a higher tax bill, and thoroughly prepared returns that lower your bill. A tax extension isn’t always the right choice, however. The best thing you can do for the health of your small business is to partner with the tax professionals at Foster Financial CPA to figure out the best course of action for you. Please contact us today to set up your tax filing consultation.
Tax Tips for the Self-Employed – Foster Financial
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