Anita Dufalla, Post-Gazette

By Joyce M. Rosenberg
The Associated Press NEW YORK -- What kind of tax season is your small business going to have? Do you already have an appointment with your accountant and expect to have your records in order? Or are you likely to show up on April 12 with a shoebox full of crumpled receipts and invoices?

There's a direct relationship between how well a company gets through its tax filing and how well it is run year-round. A business owner who has a good sense of the firm's tax liability -- and has a strategy for paying any taxes owed -- is clearly on top of things.

But, tax professionals say, many small business owners don't have a handle on their companies' finances or tax situations, making for unpleasant surprises in March and April, and a continuing struggle to make ends meet the rest of the year.

Marlene Franke, a certified public accountant and partner with Franke & Freese in Chicago, describes a nightmare that's all too common for small businesses: They owe $15,000 or $20,000 in taxes, don't pay it because they don't have the cash to spare, don't file a return and start piling up late filing and late payment penalties as well as interest.

"I call that situation the black hole," said Ms. Franke, who said companies that operate this way are continually in arrears to the IRS.

Many of these small business owners fall into the very human trap of hoping to get their affairs in order before they see an accountant or tax attorney, but never getting around to it because they're juggling too much. Here, again, is a sign that the owner needs to rethink how the company is being run and probably needs to get some help.

Barbara Weltman, a tax attorney in Millwood, N.Y., and author of "J.K. Lasser's Small Business Taxes," says this is a problem particularly for young businesses, or those being operated on the side, such as an entrepreneur who sells collectibles on eBay.

"They just start out doing what they're doing and don't realize that they have become a business," she said.

The solutions in all these cases is to start now, organizing your records for last year -- and while you're at it, getting yourself on a better path for 2006.

The best method is to use financial software; if you're not sure which one will work the best for you, ask other small business owners or your accountant. Don't have one? Now's the time to get one.

If you don't have time to sort through all the papers and input the numbers into a software program, hire someone to do it.

Even while the process of organizing your records is under way, you should be sitting down with a tax professional to try to anticipate what your tax liability will be and also to do some planning for the rest of this year.

Organized or not, many small business owners will find they're not going to meet this year's deadlines for filing returns -- March 15 for corporations and April 17 for individuals who file business returns along with their 1040s -- and they'll need to file for an extension of their tax deadlines. Because the traditional deadline of April 15 falls on a Saturday, taxpayers get an extra two days this year.

There's no harm done in getting an extension; it doesn't increase your chances of being audited. There are companies that file for extensions as a matter of course.

Starting this year, individual taxpayers are getting a break on extensions -- they need to file only once to get six months before their returns are due. In the past, the IRS would grant an automatic four-month extension, until Aug. 15, to any taxpayer requesting one. Those who weren't ready when that day arrived could request another two months, until Oct. 15. Now, the IRS will give automatic six-month extensions, eliminating the need for that second request.

But there's a big caveat with extensions, and that brings us back to the topic of being organized: While an extension gives you more time to file your return, you still have to pay your taxes by the March or April deadline.

Taxpayers have to make a good-faith estimate of what they owe and report that amount to the government.

If you don't have the money to pay your tax bill, you need to be talking with an accountant to help you work out a payment plan with the IRS -- and help you get your company on a sounder financial footing.