We're about six weeks past April 15, so it's the right time for and businesses to ask themselves questions that can lead to key operational improvements and potentially lower 2016 tax liability and businesses or individual taxpayers who missed the April 15 filing deadline without requesting an extension to discover that they have options (but the clock is ticking).
What's a key thing, often overlooked, businesses should be doing right now?
Conduct a fixed asset capitalization policy review.
Fixed asset capitalization simply means depreciating a fixed asset value over time through either monthly or yearly accounting journal entries. A fixed asset is something physical (not an ownership percentage of a company, for example) and has a lifetime use exceeding one year, but its life span can vary.
A fixed asset could be a company automobile, an office building, machinery — but not maintenance on any of those — or other items used in a business.
A fixed asset capitalization review enables you to decide if you're getting the most from the approach you're taking. For example, there may be potential for accelerated deductions or write-offs of expenses rather than capitalizing and depreciating them over time.
What should businesses generally do at this time just because it's a good practice?
One good idea is to evaluate risk management, as in what's our insurance exposure? This would include property and casualty, liability, key-man life insurance, and whatever else would come into play as a business protection measure.
Another area to explore is the potential for catastrophe and how to protect your business if your information technology is disrupted or destroyed.
If you don't have an employee use of electronic devices policy, talk to an expert and put one in place. The exposure in this arena is significant, and growing daily.
If a taxpayer — business or individual — missed the tax deadline and hasn't filed for an extension, are they up the creek, or are there options? Yes.
Tax penalties are typically calculated as a percentage of the tax amount due. If you're late, the late filing fee is $135. However, the financial impact of tax penalties (other than the late filing fee) accrues monthly, and is a percentage of any tax owed.
The IRS can waive a penalty if there is a reasonable cause for missing deadline, such as a death in the family or a natural disaster, or other situations beyond a taxpayer's control.
The date a return is filed, on time or late, starts the clock on the three years the IRS has to audit a return. However, failure to file at all keeps that year open indefinitely, and exposes you for the same time period.
Filing late? Do it soon, because it's better than never.
This article was originally posted in the Knoxville News Sentinel on May 22, 2015.