- A business tax extension gives you more time to file your tax return, which can be crucial if you don’t yet have all the necessary information.
- A business tax extension doesn’t give you more time to pay the taxes you owe; you must estimate your tax due and pay it, or risk late-payment penalties.
- It’s essential to submit the extension paperwork to the IRS before your filing deadline.
- This article is for small business owners who are considering filing a tax extension.
No matter how organized and prepared you are as a small business owner, the business tax filing due date can creep up on you. You may find that you’re still gathering and organizing crucial information, you might be unsure about tax deductions, or your tax professional may be unable to accommodate you. You also may be waiting for other business and financial institutions’ reporting forms.
Businesses of all types can request an extension on filing their tax returns. We’ll explore what small business owners need to know about filing extensions, including what filing an extension can and can’t do for you and how to file it correctly.
The IRS does not offer an extension for business owners to file Form 941 along with the payroll taxes they withhold from employee paychecks.
What is a tax extension?
Tax extensions grant you extra time to file your return without incurring a penalty, according to Daniel Glassman, a tax attorney with the Florida-based law firm Gunster. Failing to file a tax return on time can yield substantial penalties. Consider the following:
- According to the IRS, the penalty for filing a tax return late is usually 5% of the unpaid tax amount for each month — or part of a month — a return is late, up to 25%.
- Late payment penalties may also be incurred.
- S corporations and partnerships are penalized based on the number of partners or shareholders and the number of months the return is filed late.
Glassman noted that a tax extension is not an opportunity to delay payment to the government. Instead, it gives people more time to get their paperwork in order. Those who file for an extension must estimate their tax payment and pay that amount.
“You should have some idea of what your overall income and expenses were, and you are required to estimate what your tax liability is,” Glassman said. “If you either don’t make that kind of good-faith estimate or are very far off, you could be subject to a penalty for failing to pay.”
If the IRS grants the extension request — it grants nearly all requests — most businesses have six months to file, until Oct. 15. Partnerships have five months, until Sept. 15. The IRS does not notify you if it approves an extension request. You will receive a notice only if your extension request is denied.
Those who overestimate their extension payment can have that amount refunded or apply it to the following year’s tax bill.
To stay prepared all year and be ready for tax season, incorporate helpful tax solutions, like tax apps and business tax software, into your accounting system.
How to file a business tax extension
Keep these guidelines in mind when you’re filing a business tax extension:
1. Submit paperwork before your filing deadline.
The most important element of filing an extension is submitting the paperwork to the IRS before your filing deadline. If you don’t file for the extension and don’t pay your taxes on time, you face late filing and late payment penalties.
The filing deadline for your tax return depends on your business type:
Tax return due date
The 15th day of the third month after the end of the tax year
The 15th day of the fourth month after the end of the tax year
Partnership or LLC taxed as a partnership
March 15 following the tax year
Schedule C, sole proprietorship
The extension for your individual tax return, of which your Schedule C is a part, is due on April 15 following the tax year.
All tax filing deadlines are extended to the following business day when they land on a weekend or legal holiday.
2. Estimate your tax payment due, and submit payment with the extension form.
You must estimate your tax payment due and submit the payment with your extension form. The form you use to file an extension is as follows:
- Schedule C, sole proprietorship: If your business is a sole proprietorship, you can file for an extension for personal income taxes, including Schedule C, with IRS Form 4868. You can also file IRS Form 4868 for a single-member limited liability company (LLC) filed on Schedule C.
- Other businesses: Corporations, LLCs and other businesses use IRS Form 7004 to request a filing extension.
3. File your federal tax extension forms electronically or via mail.
You can print and mail your tax extension forms or file them electronically via the Modernized e-File Program, using an approved provider. You can search for an authorized IRS e-file provider by location.
Many bookkeeping platforms integrate tax filing; explore this option with your preferred tax filing or bookkeeping service.
4. You get only one extension.
The IRS does not offer an additional extension beyond the first extension. You can file a return after the extended due date; just expect to pay additional penalties. You should file as soon as possible to avoid additional penalties. The IRS notes that a failure-to-file penalty is generally more than a failure-to-pay penalty.
Don’t forget your state tax obligations. Most states don’t require you to file a separate state tax filing extension. Check with your state to be sure.
Pros and cons of filing an extension
Before you decide to file an extension, consider the advantages and disadvantages of getting an extension versus filing your tax return on time.
These are some pros of filing an extension:
- You have more time to file. Additional time is critical if you can’t get all your information together in time to file by the original due date. You may need more time if you might miss crucial deductions and other tax items by filing before you’re ready.
- You avoid late filing penalties. An extension grants you extra time to file without incurring expensive penalties.
These are some cons of filing an extension:
- You still have to pay. You must estimate your tax due and pay it, or risk penalties for late tax payment. By the time you do all the work to make a reliable estimate, you may be close to completing your tax return anyway.
- Extra time doesn’t necessarily make taxes easier. Completing your tax return does not become easier later. It may even become harder to remember deductions and other essential items months later.
- It may be better to amend your return later. If you’re unsure about a tax item — for example, if you think more deductions are possible — you can still file your return on time and file to amend your return later if necessary.
It’s important to be aware of any new small business tax changes, including permissible business expense deductions and depreciation rules, before filing your business tax return.
Preparing for next tax season
Excellent recordkeeping can help prepare you to file your business taxes on time and can be crucial in the event of a tax audit.
Additionally, many resources can help with business tax preparation, including the following:
- IRS Paycheck Checkup tool: The IRS offers a Paycheck Checkup tool to help you ensure the correct amount is being withheld from each paycheck. This is helpful if you’re a business owner who receives a paycheck.
- IRS Tax Withholding Estimator: The IRS’ Tax Withholding Estimator tool compares your tax estimate to the current withholding.
Use these resources along with a comprehensive internal analysis by your small business accountant or accounting team.
File for an extension before the deadline if you need more time
Understanding extensions can help business owners decide whether to file before the deadline or give themselves another five or six months (depending on the business type) to complete the return.
Putting off filing your return doesn’t usually save you time overall. You must estimate your tax liability and the amount due either way. If you file an extension, you have to finish the job later.
However, if you have extenuating circumstances or you can’t gather crucial information in time to file on the original due date, filing an extension can help you breathe a sigh of relief. You probably don’t want to file an extension every year, but when you really need one, it’s a valuable resource.
Derek Walter contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.