For business owners who fail to plan and prepare for tax season, filing is never something they’d likely describe as “easy.”
Between the numbers, paperwork, and your CPA’s time, there’s a lot to wrangle. And it’s not uncommon for both individuals and businesses alike to find themselves out of time when up against that March or April deadline.
Luckily, you’re not completely out of luck in these situations. The IRS provides you the option to apply for an extension of time to file returns. This essentially buys you more time to file your state and federal tax returns, with a deadline of September 15 or October 15th, depending on what type of entity you are.
Before throwing a celebratory fist in the air and deciding to take advantage of the timing for next year, take into account the facts. Here’s what you should know about tax filing extensions.
Money Is Still Due on March or April 15th
That’s right. Receiving an extension of your tax filings in any given year doesn’t extend the amount of time you have to pay what’s due.
You still have to pay the estimated amount owed by March or April 15th. And if you don’t, you start the meter running on penalties and interest. So while it may seem like a great money management tool at face value, extending without a clear understanding of what’s required can leave you with a much larger bill than previously expected.
You Have More Time for Qualified Retirement Plan Contributions
One of the benefits of tax return extensions is that in doing so, you also extend the deadline for qualified retirement plan contributions. This means you can still make payments into retirement for the prior year up to 10 months later.
For business owners, this serves as a great cash flow opportunity. You can plan ahead, ramp up operations over the summer months, and then use it to fund a year that’s technically already come and gone.
Kicking the Can Down the Road
If you’re using the extension for the sake of it, you’re probably playing with more risk than benefit in doing so. Especially if estimates submitted back in March or April weren’t reasonable to begin with. You may just be kicking the surprise can down the road when hit with a large bill from the IRS come October.
With that being said, if you weren’t able to get everything in order and/or your CPA was too busy to help — it might make sense to extend and file the right way. Your accountant will inevitably have much more time on their hands once their busiest season has come and gone.
If you took advantage of a tax extension this year, don’t wait until September to get your finances in order. Use the summer to file your return and adopt a bookkeeping system that’s stress-free to work with come January. Or, better yet, hire a team that will do the work for you. Contact Officeheads to learn more about what we can do in helping you transform your business!