So You Filed an Extension…Now What?

With tax season almost at its end, there is one thing that’s on many business owners’ minds – filing an extension. And while filing an extension might seem like your saving grace in the moment, no one wants to file an extension and then have tax season hanging over them for another six months or more.

But it happens all the time.

This can be especially relatable for small business owners in every industry from cannabis to e-commerce who normally juggle everything from sales to customer service to supply chain management. Accounting is just another piece of the puzzle.  And when you are in charge of every aspect of your business, it can be easy to forget a looming deadline (read: taxes being due) that could place you in a slight panic.

And even if you filed an extension and feel some relief that you’ve kicked that stressor down the road, know this: you may still be subject to late payment penalties. 

Yep, that’s right. You are still required to pay what you owe at the tax deadline. So even if you don’t have the final number on hand, the government expects you to make a good faith effort.  

With that said, extensions were created for a reason. The extra time granted by a filing extension allows business owners to get paperwork in order and figure out any last-minute questions.

The very nature of running a business (especially a small business) means that there will always be something to stress or worry about, and taxes should not be included on that list.

There are simple tasks you can implement in your business strategy that will help you get ahead of tax season each year.

So, what does it really take to go from stressed to self-assured? To start you have to know when you…start.

The two reasons most people file for tax extensions…

Historically, I’ve seen two different scenarios that lead to a business owner filing an extension:

Situation #1:

Client: “I thought I was on top of it, and now my CPA is asking for all kinds of things and I feel completely overwhelmed… can you help?”

This client is aware that there are multiple moving parts that fit into the bigger picture, but are just not sure where to start.

Situation #2: 

Client: “Our stuff is really simple and I don’t think it’s going to take that much on your part.”

This client may think that preparing their accounts for taxes will be a walk in the park, but more often than not means they don’t have a clear point of reference to what their accounts look like.   

Guess what? If you’re in either of these positions, it’s okay. Even if you’re somewhere in between, I’m here to help.

In both scenarios, there are two steps that I will always follow:

  1. A paid diagnostic to uncover the problem and create a report
  2. A meeting to agree upon the steps to move forward and fix the found problem

After our meeting, I will have a clear understanding of what the scope of the work is. And while I can assist in the extension process, I always advise business owners to implement some small strategies now to avoid this situation in the future.

So, what should you be doing to avoid ending up in this situation?

How to Ditch Extensions For Good

Let’s get one thing clear: when you have a working relationship with your accounting service and/or bookkeeper, you are more likely to stay on top of things throughout the year. 

Then, when tax season comes back around, you can hand over a nice package to your CPA and not have any big surprises to worry about. 

Sound simple? It really is. Staying on top of your finances all year long means that when tax time rolls around, it’s a matter of dotting your i’s, crossing your t’s and making sure all your business transactions are in proper categories.

Know this, however: 

Even with a good partnership, you must maintain some responsibility when it comes to keeping an eye on your accounts month to month, quarter to quarter, and year to year. 

Yep, that’s right. You should be looking at your books and meeting with your bookkeeper regularly to gauge where you are and when you need to ask for help.

Being aware of what your accounts look like and what actions need to be taken now is a surefire way to avoid the penalties and the extra payments in the future. 

Ready to get comfortable with your business finance taxes?

If finally getting your head out of the sand and in control of your finances is on your agenda for 2022, congratulations! This is the year that you break the cycle and get your accounts on track… starting now. 

And that all starts with understanding where you are at and finding the right partner.  

Schedule a free consultation today to get started