It’s one week until Tax Day, and countless small business owners are finding out whether they will get a refund or wind up owing money to the IRS.
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While small business owners should have been paying their estimated quarterly taxes regularly, sometimes entrepreneurs fall short. Not to mention, the incredibly cold winter of 2014 hurt the cash flow of many businesses. It is hard to send in a big check to the IRS if you are struggling to make your payroll. So what to do next? Here are three tips:
File an extension
Asking for an extension is not costly, and if you are behind in pulling together all of your data, it is a relatively easy way to set things straight. Ask your accountant to file IRS Form 4868 before April 15th to ask for more time. There are two advantages of doing this: it buys you more time to review all of your paperwork and perhaps identify deductions that you might have missed. Secondly, business may pick up during the extra time. Thus, you will have more money saved to pay your tax obligation from 2013, if you do not currently have the money available right now.
Review your revenues and deductions
Everyone makes mistakes. Do-it-yourselfers rushing to finish their returns before the April 15th tax filing deadline may make errors in their haste that cost the business thousands of dollars. Double-counting revenues can happen. Missing deductible expenses because of fatigue is not uncommon. If you are using an accountant, be sure to provide all receipts for your deductible expenses. Additionally, do not just sign the return forms without reviewing the accounting firm’s work. Anyone can make a mistake, no matter how long they have been in business.
Secure short-term funding
If it turns out that you owe a lot of money to the IRS from last year’s tax obligation, you might consider using your corporate credit card if you are short on cash. Unless you have an unusually large tax bill, you can pay the whole thing in full and avoid IRS penalties. This ONLY makes sense if you are confident you will be able to pay off your credit card in a timely manner. And before you go this route, find out the interest rate on the credit card. It is possible that the credit card interest payments are much higher than the rates charged by the IRS.
Further, if you are caught short on cash flow, April 15th might be the right time to tap into your business line of credit. If you already have a line, simply pay what you owe via the line. However, if you do not have an existing line of credit, things can be trickier. Lenders might not be jumping to give you a line of credit when your returns indicate that your business owes thousands in back taxes. You may wind up having to look for money from other sources of funding, including cash advance companies and other non-bank alternative lenders. These institutions charge higher interest rates because of the risk they are willing to take on and the speed by which they are able to make financing decisions.
Even if none of the previously mentioned options works for you and your business, it is important to pay as much of your tax obligation as possible. Ignoring the deadline results in penalties, and the IRS often plays hardball with people who do not pay their taxes.
Rohit Arora is co-founder and CEO of Biz2Credit, an online resource that connects 1.6 million small business owners with 1,200+ lenders, credit rating agencies and service providers such as CPAs and attorneys via its Internet platform. Since 2007, Biz2Credit has secured more than $1 billion in funding for small businesses across the U.S. Follow Rohit on Twitter @biz2credit.