There are a lot of misconceptions about the process of filing an extension. But getting more time to do your taxes by filing an extension can be an important strategy for the small business owner.
One of the biggest misconceptions people have is that you will increase your chances of an audit with an extension. Tax professionals will tell you this is a myth. In fact, many believe you actually reduce your chances of an audit by extending.
The reality is the IRS doesn't wait to focus all their resources on the more than 10 million estimated taxpayers that file extensions. Instead, they get to work in the spring on those who have already filed their returns. It's not extensions, but rather income and expense data that truly dictate the audits assigned each year.
So what are some important benefits of filing an extension and key facts you should know?
Filing an extension gives you the extra time you need to gather books, data and receipts to insure all your information is correct. With this time, you can re-evaluate your tax strategy and what write-offs you might be missing.
If you have procrastinated getting your information to your tax professional, giving it to them at the last minute isn't going to help either. Everyone knows that CPAs aren't sleeping this time of year. Why expect extra TLC on your tax return when they're already focused on clients who got their data to them sooner?
Many tax professionals appreciate when their clients are willing to extend. An extension gives them more time to meet with you and better strategize in May or June when their time is more manageable.
But remember: an extension gives you more time to file, not more time to pay your taxes. It's important that you estimate what you think you owe and send it in with your extension. This will reduce penalties and interest on what should have been paid by April 15. If you think you will receive a refund, don't stress -- as soon you file, your check will be in the mail.
Many people don't realize that extension periods vary based on the type of business you own and operate.
For individuals and sole proprietors, you can receive an automatic six-month extension, giving you until October 15 to file. If you want an extension, you can easily download and file IRS Form 4868.
For limited liability companies (LLCs) and partnerships, business owners can receive a five-month extension until September 16 this year (due to the 15th falling on a weekend) by filing IRS Form 7004.
S and C-Corporations must have already filed their extension by March 15 with Form 7004 and have until September 16 to submit their final returns.
Bottom line: Don't feel rushed and pressured to file by April 15. There's a reason for extensions and no penalty to extend. If you don't feel comfortable with your records or preparing your own return at the last minute, there will be plenty of excellent tax professionals available in May to help you do it right.
The goal here is to save taxes and file an accurate return, not be rushed to file by April 15.