How does your business ensure it doesn’t receive filings at 11:59 PM the night before the extended deadline? Besides bringing your business income tax to Clearview Group, we’ve got helpful tips and expert advice to ensure your returns are filed on time and, ultimately, with plenty of time to spare.
We promise that it’s possible, regardless of what your business has been told in the past.
This blog addresses income tax tips and advice for for-profit business entity types. Let’s review some terminology to make things simpler:
Pass-Through Entity (PTE): This is a business type in which the company does not bear the income taxes, but rather its owners pay them as part of their individual filings. PTEs include partnerships (Form 1065), S-Corporations (Form 1120-S), and LLCs with multiple members that have not elected to be treated as a C-Corporation for tax purposes.
Corporation (C-Corporation or C-Corp): This is a corporate entity taxed directly on its earnings. Distributions to shareholders are also generally taxed as dividends at the shareholder level.
Now that we’re on the same page about entity types, here is something to remember while reading this blog – the answer to almost every income tax question is, “It depends.”
For this blog, we assume the calendar year-end of December 31. Additionally, all due dates mentioned are based on Federal returns.
So, what is an extension? In most extension instances, the government will allow an extra six months to file your business tax return. This is accomplished by filing an automatic extension of time to file form.
Note that this is an extension of time to file, not an extension of time to pay your taxes.
Furthermore, if this form is not filed by the return's original due date (March 15 for PTEs and April 15 for C-Corps), the IRS will consider the tax return late and assess penalties and interest. So much for “automatic.”
Why does your accountant seem to extend your business tax returns every year? For most taxpayers, there simply is not enough time to gather everything required to prepare a complete and accurate tax return.
PTE returns are due on March 15, while corporate tax returns are due on April 15. The earlier PTE due date is because owners need time to calculate their tax liability from the PTE's activities. If everything were due on the same day, cash management would be quite difficult regarding business income taxes.
Is there anything wrong with extending your business tax returns? As always, “It depends.”
Generally, extensions are pro forma, meaning most businesses are, by default, extended to allow for more time to gather the information needed to complete the tax return accurately. It’s a common practice in most instances, as extensions are a crucial tool in your accountant’s toolbelt.
“It’s extremely important to communicate expectations between you and your accountant – and vice versa.”
“It’s extremely important to communicate expectations between you and your accountant – and vice versa,” said Brian Lichter, Principal of Business Income Tax Services at Clearview Group. “It can strain a working relationship when the business expects a tax return on April 15, only to find out it was extended. Both sides must communicate desires and expectations at the start of an engagement and continually throughout the process.”
Long story short, extensions are often necessary for filing business income tax returns. There is nothing inherently wrong with extending a tax return. It is, however, vital to keep the lines of communication open with your accountant throughout the process.
If your business operates internationally, proper reporting is extremely important and can become very expensive when items are missed or not filed in a timely manner.
For example, suppose your business is owned by a foreign parent company or related to another foreign entity through common ownership, and you fail to disclose payments made or received to/from that entity. In that case, there is an automatic $25,000 penalty, assuming the omission was not willful. If the omission was purposeful, we’re talking about potential prison time.
Similarly, if your business directly (or indirectly) owns a foreign entity and fails to report, it’s subject to a $10,000 penalty for each omission.
Essentially, your accountant must be aware if your business has any foreign holdings or is related to a foreign entity through direct or common ownership.
Remember when we mentioned filing the form for the automatic extension? If your business has foreign operations and you don’t file for an extension on time, your return is automatically considered late, and you will be assessed with the previously mentioned penalties.
Your accountant will need a detailed roll-forward of your business’s fixed assets from the previous year through the end of the current tax year.
This would include all purchases, sales, disposals, impairments, etc.
Your business will need to gather apportionment data to report multistate activities properly. This includes breakdowns of sales, payroll, and property by taxing jurisdiction.
The exact jurisdictions from which these items are sourced depend on the nature of your business (e.g., manufacturer vs. retailer vs. service provider).
If you are unsure how this applies to your business, call your accountant ASAP to discuss what you need to aggregate. The earlier you can do this, the better.
If you made any business income tax payments during the year, your accountant would need a listing of what was paid (extension, estimate, notice received, etc.), the taxing jurisdiction, and the date(s) of payment(s). This is the only way that your accountant can ensure to report the proper amount of tax paid, so that you’re not missing a payment, or worse, your accountant reports a payment that was assumed to be made but was not.
For electronic filing purposes, if you made Federal estimated tax payments as a business entity via EFTPS, your accountant will need the confirmation numbers from the payment records.
Ultimately, there is no way to make an exhaustive list of everything that you can do to make your business tax filing a smooth process. However, the four areas mentioned above will definitely get your business started in the right direction.
As we mentioned in the beginning, there is no reason for you to receive your tax returns at the absolute last minute every year, especially if you have your data to your accountant in a “timely” manner.
If you find yourself scrambling to make your business tax payments year after year, talk to our experts.
We are a full-service management consulting and CPA firm covering all aspects of audit, compliance, risk management, accounting, finance, tax, IT risk, and more. Just let us know what you need help with and an expert will be in touch!
Request Your Consultation
