Do you need more time to file your taxes or want to see if there are more ways to reduce what you owe? A business tax extension using Form 7004 or Form 4868 gives you more time to file your business tax return without having to worry about the IRS. Keep reading to learn more about how a business tax extension helps you and what you need to do.
What Does a Business Tax Extension Do?
A business tax return gives you more time to file your tax return. When you receive an extension and file your tax return by the extended deadline, the IRS treats your tax return as if you filed it on time. There are no late filing penalties for extending your return.
Even when you extend your filing deadline, you must pay your taxes owed in full by your original tax return due date. The extension does not give you more time to pay. If you owe money when you file an extended return, you will pay interest and penalties on the time between your normal filing deadline and the time you pay in full.
How Do You Know What to Pay Before You File?
If you haven?t completed your tax return, you will need to estimate your tax liability. You can either complete a draft of your tax return or approximate it based on your change in profit from the previous year. Consider paying slightly more than the amount you estimate you will owe as any balance due when you file your extended return will be subject to interest and late-payment penalties.
Note that the Form 1040-ES and 1120-W estimated tax payment minimums to avoid penalties do not apply here. For example, if you needed to make four quarterly payments of $25,000 to avoid underpayment penalties and owe an additional $10,000, you must pay the $10,000 by your original filing deadline. If you don?t pay the $10,000 until your extended filing deadline, you will pay interest and penalties on the $10,000.
What Are the Advantages of a Business Tax Extension?
Having more time to file means more time to get your tax return right. This means more time to choose the right elections or to look for deductions or credits that you may have missed. Even when you?re working with an accountant, some business credits and deductions are more complicated, and it can take time to work through what expenses are eligible. If you got behind on your accountant, an extension gives you more time to catch your books up instead of possibly missing things.
If you use a SEP IRA, Solo 401(k), or SIMPLE IRA, you can contribute up until your extended filing deadline. This gives you more time to max out your contributions if you weren?t able to do so by your original deadline.
What Are the Disadvantages of a Business Tax Extension?
The main disadvantage to a business tax extension is that you don?t get more time to pay. This means that you still need to figure out your tax liability by the original deadline or face penalties. In addition, relying on business extensions to give you more time to complete your books rather than using them on strategic reasons can leave you permanently behind on your taxes and accounting.
What Form Does Your Business Need to Request an Extension?
There are two forms for business tax extensions depending on what type of business you have.
If you?re a sole proprietor or single-member LLC filing income taxes on Schedule C of Form 1040, use Form 4868 for individual tax return extensions.
If you?re a partnership, C-corporation, S-Corporation, LLC filing as a corporation, or LLC filing as a partnership, use Form 7004 for business tax return extensions.
How Much Time Does a Business Tax Extension Give You?
Business tax extensions generally extend your tax return due date by six months.
There is an exception for C-corporations with a June 30th fiscal year end. Because their tax returns are due a month earlier than other C-corporations (15th day of the 3rd month instead of the usual 15th day of the 4th month), June 30th filers can generally receive a seven-month extension.
Can the IRS Deny a Business Tax Extension?
Form 4868 and Form 7004 are applications for automatic extension. That means that as long as you file the form on time (on or before your original tax return due date), you will receive the extension. The IRS will not deny an extension.
Is it Possible to Get a Longer Extension?
It is extremely difficult to get an extension beyond the automatic extension. You would need to petition the IRS for a waiver or extension, but this is not automatic, and they only grant these requests in extreme circumstances. This may include being in a federally-declared disaster area or having your business destroyed by a fire.
Can You Request a State Tax Extension?
If you need to file state tax returns in one or more states, check with each state where you file. Each state may have different processes and deadlines, and requesting an extension from the IRS may not be enough to receive an extension from a state.
A business tax extension can be a useful tool that buys you more time while potentially saving you money. While the extension is automatic, there?s still work you need to do to make sure that you pay what you owe on time to avoid interest and penalties.
Honest Buck can help you extend your business tax return and figure out what you should pay to the IRS and when. We?ll also help you find deductions and credits and plan for next year. If you?re extending because you?re behind on your accounting and bookkeeping, we can take over those tasks so you never have to worry about them again. Contact us now to schedule a consultation.