Apr 06, 2010

Asking the IRS for a Tax Filing Extension

As anyone -- especially a busy small business owner -- knows, that annual IRS tax filing date can come up quickly. If you need more time to pull together all your tax records and documentation to send to your accountant or tackle on your own, consider filing for an extension with the IRS. 

Unlike with an amended return which may trigger greater IRS scrutiny of your tax return, filing for an extension should not increase your chances of an audit, according to "Business Owners Look to Extend Tax Time," a recent article in the Wall Street Journal. 

You must file for an extension by your tax filing deadline, which is April 15 for flow-through entities like sole proprietorships, partnerships, and S corporations. For corporations, the filing deadline is two and a half months after the end of the company's fiscal year. 

Just because the IRS automatically grants you the extra time to file doesn't mean you are off the hook for paying what you owe. You'll get extra time to gather your paperwork and make sure you haven't missed any deductions or credits but you still have to estimate your tax liability for the year and pay that amount when you file for the extension. If you underestimate, the IRS will charge 3% to 6% interest on the amount you underestimated by. And if the IRS thinks you didn't act in good faith, it can add a .5% penalty per month until the liability is paid. Nevertheless, in the end, it is more important that you spend the time to do your taxes accurately. If it means filing for an extension, then take advantage of this automatic reprieve the IRS grants to all taxpayers.

For help in developing the best tax plan for your small business, see Tax Savvy for Small Business, by Frederick Daily (Nolo).