Do not look at the calendar and think, "I don't need to start on my small business tax return yet. I have more than three months to do it."
That attitude is begging for last-minute panic and mistakes that will cost you money.
Tax returns are due April 17 this year. The usual deadline, April 15, falls on a Sunday. And the 16th is Emancipation Day, a holiday in Washington, D.C. So you get two extra days to get your return filed.
Here's how to avoid problems when April arrives:
IF YOU'RE GOING THE CPA ROUTE
If you're planning to have your return done by a certified public accountant or other tax professional, you need to make an appointment now to get the process started. If you don't have a preparer yet, don't hire a friend of a friend or someone's brother. Start looking now for someone who understands your kind of business.
There are two reasons for this. First, there are federal and state tax laws that govern certain kinds of businesses, so you want a preparer who's familiar with what you need to pay. Second, it's a good idea to hire someone who'll do more than help you with taxes. You'll better off with someone like a CPA who can advise you on running your business year-round.
You want to sign on early with a tax professional. Their schedules fill up fast, and the closer you get to April 17, the less time they'll have to get to know you and your business. And anyone who shows up at a CPA or attorney in early April and expects to start the process then is likely to hear: "We're going to get you an extension" of the filing deadline.
AND IF IT'S DIY
If this is the first time you're doing your own business tax return, start learning how to use tax prep software now. Rushing at the last minute means you can make a mistake. You need to have time to understand what you're doing, and to get some help if you can't figure out the software or the tax laws.
Here's a for-instance: You lost money last year. It's the eleventh hour and you don't know much tax law. So you might be inclined to take the full loss for 2011. But you might be able to apply some of the loss to previous years -- or use it to reduce your taxes in the future. The government calls that a net operating loss carryback or carryforward. If you don't take the time to learn, you can miss out on tax breaks.
And mistakes can cost you more than you know. A return that has a lot of problems is likely to be singled out for closer review by the IRS or state tax authorities. And if you haven't paid enough taxes, you'll be facing interest and late penalty payments. They add up.
ABOUT THOSE RECORDS
No matter who's doing your return, you need to have your invoices, receipts, checkbook and ledger in good shape. Ideally, if you've been using accounting software to keep your books, you can import your data into a tax prep program, or just hand over files to your accountant.
But if you're what CPAs ruefully call a "shoebox client," and have a pile of unsorted papers, you're a recipe for disaster unless you get everything straightened out now. If you hand the pile over to your preparer and let them figure it out, remember that you're paying by the hour to do something you could do. If you don't have time to do the sorting, hire an accounting student as an intern. You'll pay less than if your CPA does it. (And, by the way, some accountants will refuse to do it for you.)
Trying to do your own taxes with that pile in front of you is an invitation to leave something out. Another expensive mistake.
AND IF YOU WAIT UNTIL THE LAST MINUTE ...
... And realize you're overwhelmed and can't get your taxes done on time or right, file for an extension. There's no harm in it -- many business owners routinely get six-month extensions of the filing deadline as a way to manage their cash flow. Tax professionals agree, filing for an extension is highly unlikely to make the IRS want to audit you. (The government doesn't have enough employees to look into why millions of taxpayers file extensions).
A tax preparer can easily file an extension for you. Tax prep software is another easy way. Or go to the IRS website, www.irs.gov, and download Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Owners with corporations need to file Form 7004. You can e-file them through the IRS site.