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.
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:
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.
Keep these guidelines in mind when you’re filing a business tax extension:
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.
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:
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.
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.
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:
These are some cons of filing an extension:
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:
Use these resources along with a comprehensive internal analysis by your small business accountant or accounting team.
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.