Firms urged to seek IRS extension rather than rush to file

By Joyce M. Rosenberg
Associated Press

NEW YORK — With tax season in its final days, small business owners who haven't started working on their returns yet should seriously consider filing not their 1040s but their 4868s.

IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, gives taxpayers four extra months to finish pulling together the information they need to complete their returns.

Some business owners might worry that filing for an extension can make their returns more likely to be audited, but tax professionals call that fear groundless and advocate getting an extension rather than rushing and making mistakes that can cost you money.

"Why not get an extension?" said Barbara Weltman, a tax attorney in Millwood, N.Y., and author of "J.K. Lasser's Small Business Taxes." "There's no real downside."

Weltman noted that many small business owners file for extensions as a matter of course. Those with Simplified Employee Pension retirement plans often get extensions to have more time to make their prior-year contributions; they use Form 4868 as a money management tool.

And many business owners who are in partnerships file for extensions because of delays in getting their Form K-1, which includes partnership income figures. Without that information they cannot complete their 1040s.

Perhaps the most important reason for getting an extension is that without one, you likely will pay hefty penalties for filing your return late. The IRS charges 5 percent of the amount due for each month or part of a month that a return is late. It might waive a penalty if you have a good reason, but that is up to the agency's discretion.

Filing Form 4868 gives taxpayers until Aug. 16 to complete their returns. (Normally the extension is until Aug. 15, but that date falls on a Sunday this year.) They can then request additional time of up to six months, but that is not automatically granted, unlike the 4868 extension.

Form 4868 is very short, calling only for your name, address, Social Security number and — this is the really important part — an estimate of your tax liability for 2003. You must make a good faith estimate of how much you owe the government. If you expect to pay no tax, you can enter zero. But the IRS warns in the instructions for Form 4868: "If we later find that the estimate was not reasonable, the extension will be null and void."

The form also asks how much you are paying. Even if you can't pay, you'll still get the extension, but you'll be liable for late payment penalties of 0.5 percent a month or part of a month on any tax not paid by your return's regular due date, which is April 15 for most.

Remember, Form 4868 gives you an extension of the time to file your return, not of the time to pay your taxes. Weltman's advice: "Pay as much as possible."

The IRS must receive your request for an extension by midnight on April 15. You can file Form 4868 by phone or electronically, using tax preparation software. In either case, be sure you make note of the confirmation number you're given.

If you file a paper form, be sure it is sent before midnight on the 15th. It's best to get a return receipt so you have proof that it was mailed on time.

To get an extension on your Hawaii taxes, file state Form N-101A no later than April 22. The state government will also accept federal Form 4868 instead, if it is completed using amounts for Hawaii income tax purposes.

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