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Tuesday's Tax Tip: Filing For an Extension

Posted by Gayle Kesten Tuesday, Apr 8, 2008, 08:02 AM ET

Paying taxes is inevitable, but, if necessary, business owners have the option to file for a six-month extension.

That doesn't mean you're off the hook. Filing for an extension might buy you time, so to speak, to complete your paperwork, but you're still expected to pay in the ballpark of what you think you owe.

Not having the right documents or simply lacking the funds to pay are the two main reasons business owners fail to file their taxes, according to this article on Smart Money's SmallBiz Web site. But burying your head in the sand is not the way to handle the situation; if you do, expect your unpaid balance to be socked with penalties and interest charges. At the very least, sole proprietorships, partnerships, LLCs and S-Corps must formally file for an extension before the April 15 deadline; in doing so, you'll also avoid one of the penalties (C-Corp should have filed March 15).

Keep in mind, even if you don't owe the government a dime, you won't see your credits toward Social Security and disability until you file your taxes. It also stands to reason that without filing your paperwork, the government won't send you any refund due your way.

Another ramification of blowing off your taxes: The IRS will file a substitute return for you based on information it gathers from other sources. As stated on the IRS' Web site, "a substitute return will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability." From there, the IRS' collection process begins, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.

On the flip side, an article on the National Federation of Independent Business argues that filing for an extension can actually be good business. If, for example, a lucrative project comes along that requires your attention, obtaining an extension may make sense.

In the publishing world I come from, a deadline is a deadline, so that NFIB article doesn't exactly fly with me. Requesting an extension should be borne out of necessity, not strategy.

If you do file for an extension, take heart: plenty of tax professionals, busy taking care of everyone else's paperwork, do the same. Here's the application for extension, a PDF file, should you need it.

Overlooked Deductions

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