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Traditionally, filing tax returns is a cumbersome process that involves filling up many pages of complicated forms. Forms are usually received via mail. However, mail can sometimes be lost. Those who failed to receive the forms from the federal government may have to collect the forms themselves to ensure that they are able to file on time. The process can be rather time consuming, and sometimes, the filing can be further delayed due to form errors.
Fortunately, with the help of the Internet, cumbersome forms are a thing of the past. E-filing on the Internet is a very systematic process, and everyone with a computer and an internet connection can make an e-file. The process goes like this:
Account creation.
This is the very first step that you need to take. Your SSN number will be your user name, and you will need to choose a password. Memorize the password. Try not to write the password down as you may lose the piece of paper. If you really have to, keep the piece of paper in a secure place. You can always reset the password if you ever forget what your password is.
e-Filing your tax return.
Once an account has been created, the next step to take is to start the e-filing process. The system will present you with a series of form fields, which you need to fill in. At this point, it will be useful if you have all your numbers ready at hand.
The actual e-filing process is like going through a wizard. You are guided every step of the way from start to finish. If you find yourself stuck somewhere in the middle because of some missing information, don't worry. You can always save the information that you have already entered, go retrieve whatever information you need, and come back at a later date and start from where you left off.
Credibility issues.
As e-filing involves sending highly sensitive information through a public network, it is important that there is some way to establish the credibility of a website. Don't just send in sensitive information through a website just because you receive some email claiming that it's from a legitimate source. Click on everything on the website to make sure that there is nothing suspicious, and call up the numbers listed on the site if possible just to be safe.
Security concerns.
However, even if you are e-filing from a qualified website, there may be more security concerns. Mostly, such concerns are technical issues. For example, SSL must be utilized to ensure that data passes through a secure connection. You know that there is a valid SSL connection available when you see an "s" in front of the "http", or when you see a secure padlock on the status bar of your browser.
On top of that, there should also be third party audits. Security firms who perform such services conduct regular security audits to make sure that the website upholds industry security standards. Certification should be clearly displayed on the website.
You may then e-file with confidence.
Yes, the tax season is upon with the first filing date for some businesses being March 15, 2005. If you can't imagine getting your tax returns together by that date, you need not worry. The IRS automatically gives you an extension if your file the appropriate form. As you might expect, there are different forms for different businesses.
An Important Note
It is vitally important that you understand that an extension to file taxes is not an extension to PAY taxes. The IRS will give you a break on the filing date, but it wants the money now! If you anticipate that you will owe taxes, you need to send in the appropriate payment. Failure to do so could result in interest charges when you eventually get around to filing your returns.
Corporations
If you conduct business as a corporation with a fiscal year-end of December 31st, you are required to file your 2004 tax returns on or before March 15, 2005. You can get an automatic extension, however, by filing form 7004 before the March 15 deadline. Form 7004 applies both to “C” and “S” corporations and grants you an automatic 6-month extension to September 15, 2005.
While this automatic extension applies to “S” corporations, you should be aware of a quirk in the tax code. Since “S” corporations “pass through” taxes to your personal returns, the six-month extension is really only a five-month extension. To file your personal tax returns, you must report information from the K-1 issued from the “S” corporation. Unfortunately, the IRS only grants automatic extensions for filing personal tax returns to August 15, 2005.
Limited Liability Company
The IRS has never really figured out to how to handle limited liability companies. It has settled on a policy of avoiding the issue and simply treating the entity as a corporation or partnership.
Limited liability companies with more than one owner typically elect to be treated as partnerships for tax purposes. If this describes your situation, the LLC is required to file tax returns by April 15, 2005. You can obtain a 3-month extension by filing form 8736. Although form 8736 contains language regarding partnerships, you will still use this form since the IRS classifies you as a partnership for tax purposes.
If you are the sole owner of an LLC, you may be in for a surprise. The IRS doesn't recognize LLCs owned by one person. Instead, it simply considers you a sole proprietor and the rules for sole proprietorships apply. These are discussed below.
Partnership
If your business is a partnership, you are required to file tax returns by April 15, 2005. You can use form 8736 to obtain a 3-month extension.
Self-Employed/Sole-Proprietor
If you are not using a business entity, your business tax information should be reported on your personal tax return. The due date for filing your personal tax returns is April 15, 2005. You can obtain a four-month extension by filing form 4868.
Summary
Regardless of how your business is organized, the IRS will automatically grant you an extension to file your tax returns. By sending in the appropriate form, you can avoid a mad rush that will inevitably result in missing deductions and overpaying your taxes. Just make sure you pay any taxes you anticipate owing by the appropriate date.