Tax problems are all too common among small business owners. Why are they so widespread? Many owners don’t have a complete understanding of what actually causes these issues and how to prevent them. Moreover, these problems are compounded by an inability to pay your taxes by their deadlines.
You may be thinking that filing a tax extension resolves your inability to afford tax payments when they’re due. But, this is a false solution – whether you’re filing as an individual or a small business. We’ll explain why.
First, it’s necessary to understand that tax problems don’t always stem from recent activities. Many issues originate from high-level decisions that were made when your business was established.
For instance, are you certain that your business entity is the most advantageous business structure? If not, your tax expense could be much greater than necessary. Did you take advantage of the maximum allowable deduction for an equipment purchase? If not, you might be missing out on opportunities to benefit.
Some of these past tax problems can be solved retroactively, but many cannot. If your issue is solvable, seek tax advice as soon as possible – your timetable to correct such mistakes is not infinite.
The Tax Filing Extension: Not Your Friend
It’s almost never the case that a tax extension is advantageous to you. In reality, your tax preparer or accountant is the one who benefits from filing an extension on your behalf. They may be overbooked and don’t have time to give you the attention your small business needs.
Also note that income tax is the only kind of tax on which you can file an extension. Your sales and payroll tax must be filed by their deadlines.
Some businesses now operate as if the end of tax season is October 15, not March 15 (or April 15 for personal income tax). But, the October extension deadline is only in place to clean up any filing issues and to ensure the accuracy of your filing. Your business’s income tax payment is still due in March.
A filing extension does NOT extend the deadline to make your tax payment.
You must make a payment based on your estimated tax expense. Paying nothing by your tax deadline costs you greatly – in the form of tax penalties and high interest rates on the money you owe.
Address Your Tax Problems Immediately Or They’ll Persist
Even if you are granted a filing extension, you have an obligation to make a minimum payment when you file the extension. To prevent a recurrence in the future, however, you must address whatever issues are causing these problems.
In many cases, you’ll need to make a change in how you run your business, specifically regarding your record keeping.
Remember, filing an extension doesn’t solve your issues. Changing your approach to taxes and truly addressing your problems is what protects your bottom line.
Learn 4.5 tax tips to protect your small business and your bottom line.