Tax season is winding to a close, unless, of course, individual or business taxpayers opt to file for an extension. The most common misconception is that filing for an extension grants taxpayers more time to pay their tax bill. Unfortunately, this is not true. The IRS still wants their money by the April deadline and extensions merely grant an extra five or six months to file a return. If you still have to fork over the cash, why choose to file for extensions?
“Managing your cash flow properly with a plan is the best way to avoid penalties! Anticipate what is potentially coming and explore all your options so you can make the decision that is right for you and your business. CSS leads by example with a very conservative approach towards managing all cash and finances. Forecasting cash flow helps us to stay ahead of the curve!” says Suzanne Gahm, Accounting Manager, Contemporary Staffing.
Filing An Extension Reduces Penalties
A whopping tax bill can cut into cash flow in a big way. Businesses and individuals that can’t afford to pay their bill in full by the deadline won’t be subject to the extra penalties they would incur if they simply ignored the April deadline.
The IRS charges up to 5% per month plus a late fee of half a percent per month. These fees can add up quickly, adding insult to injury on a large bill. Filing for an extension eliminates the penalties until September or October, depending on whether the taxpayer is a business or individual.
Extensions Can Be Requested For Almost Any Reason
Individuals often need extra time if they are missing documentation, if self-employed taxpayers want or need extra time to contribute to a SEP-IRA or SIMPLE-IRA, to recharacterize an IRA, or they need more time in the event of something like a catastrophic illness. Businesses can request extra time to decide whether to depreciate equipment or take a 179 deduction, whether to carry back or forward losses, or even to navigate the company’s busy time of year.
The IRS can deny extension requests, though most extension filings made in good faith for legitimate reasons are granted. Taxpayers generally hear back from the IRS within 24 hours of filing an extension request. As long as the extension is submitted before midnight at the deadline, the application counts as being submitted on time, even if the IRS denies the request.
Individual extensions are filed using Form 4868, or they can be requested online. Online extension filing is often a wise move because it immediately generates a confirmation code indicating that the request was received. Business extensions can be filed using Form 7004.
Own A Business? You’ll Have To Extend Your Personal Return, Too
Business owners should understand that if they file for a tax extension on their company, they will almost always need to file a personal extension, as well. This is especially true for flow-through or pass-through businesses like sole proprietors and single-member LLCs. If more time is needed to prepare business forms, it would make their personal filing inaccurate if submitted on time.
It is wise for both individual and business taxpayers looking for an extension to work with skilled CPAs to help them navigate the rules to prevent errors and penalties. If you are looking for accounting professionals with the skills and experience to help your business or your clients navigate the complex tax landscape, Contemporary Staffing Solutions can help. To learn more about the ways our accounting and finance recruiters can move you towards your goals, contact CSS today.