Haven't filed your taxes yet? Consider an extension
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April 03, 2002
The Associated Press
By JOYCE M. ROSENBERG, AP Business Writer
NEW YORK -- If you're the sole proprietor of a business and you haven't filed
your tax return yet, technically you still have time before April 15. But on
a practical level, if you're not very close to being done with your return,
you really should be thinking in terms of filing for an automatic four-month
extension of the deadline.
When clients show up at Donald Cohen's office after April 1, expecting to
start their returns from scratch, "I usually tell them we're filing an
extension," the Boca Raton, Fla., certified public accountant said. "When
you rush things through, you usually make errors." And that's a tax professional
speaking. If you're just starting on your Schedule C and Form 1040 yourself,
you probably should also consider an extension. (If your company is a corporation,
the deadline to file a corporate return was March 15; it's too late for an
extension and if the firm owes taxes, it's running up penalties.)
"A lot of the time, the necessary work can't be performed" this
late in the filing season, said Cohen, a director of Newman & Cohen Financial
Management.
Procrastination is a common reason for running up against the deadline. "Sometimes
business owners are so busy trying to keep their heads above water because
they're understaffed," said Jeffrey Chazen, a tax partner at the accounting
and consulting firm Richard A. Eisner & Co. LLP in New York.
But Chazen said many other business owners are in a cash crunch - they owe
their 2001 taxes and their first estimated tax payment for 2002 (also due April
15). They wish the whole issue of taxes would just go away, he said.
The government gives taxpayers a great incentive to file for an extension
- without it, they start running up hefty penalties for failing to file a return,
5 percent of the tax owed for each month the return is late. Filing for an
extension - even if you don't have the money to pay right now - by the April
15 deadline means you won't have to pay that penalty.
Filing for an extension is fairly simple, but there are some rules you need
to keep in mind.
Basically, it means completing IRS Form 4868 and sending it to the tax agency
(you might also need to complete forms seeking an extension with your state
tax authorities). You can physically fill out the form and mail it in, or you
can file for an extension electronically or by phone by calling (888) 796-1074.
BUT - notifying the IRS that you're seeking an automatic extension is just
half the process. If you're likely to owe taxes, you have to make a good-faith
estimate of what you owe and send it in as well. When you do file, there'll
be a late payment penalty of 0.5 percent per month on the balance of your taxes,
if any.
However, if you pay at least 90 percent of your actual taxes, you won't be
charged a late payment penalty on the balance.
If you don't have the money, make the estimate anyway and file for the extension,
Chazen said. Do not claim on the form that you owe zero tax; when you do file
your return and the IRS sees that you owed taxes, the agency will declare your
extension invalid and you'll have both penalties, for late payment and the
more serious failure to file.
The IRS will waive the late payment penalty if you can show reasonable cause
for not having paid on time. And if, when you file your return, you still don't
have the money to pay, you can work out an installment payment plan with the
IRS.
Business owners who work with an accountant or other professional preparer
will need to supply a profit and loss statement for the year to come up with
an estimated tax payment, Cohen said.
With an extension, you have until Aug. 15 to file your return. It is possible
to get a further two month-extension, until Oct. 15, but you have to ask the
IRS to approve the extra reprieve.
You're better off if you don't leave your return until the summer to complete
and file - the longer you put it off, the more of a distraction and stress
creator it becomes. Cohen says he usually gives clients a deadline for getting
him the documents he needs to finish the job.
If you file for an extension yourself, be sure you send it by certified mail
with a return receipt (look for the green cards and forms at the post office).
That way, if the form is lost, you'll have proof that you mailed it on time.
Although e-filing and extensions by phone are convenient, Cohen recommends
snail mail. "A lot of times I've needed that return receipt to prove extensions," he
said.
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