We get it. Time flies. And if time has gotten away from you when it comes to filing your taxes, not to worry; you can file for a tax extension. While a tax extension might seem faux pas, it’s actually relatively common. In fact, out of approximately 140 million U.S. tax filers, there are about 10 million businesses and 5 million individuals who file tax extensions annually.
If spring is your busy season, file for a tax extension. If you had an emergency earlier this winter, file for a tax extension. If you simply haven’t gotten your records together, file for a tax extension. Filing for a tax extension will give you 6 more months to get your taxes squared away.
Some people express concerns that filing for a business tax extension can lead to an audit, but there has been no evidence that supports a correlation between extensions and audits. And because the IRS doesn’t ask you to provide a reason for your extension, there’s nothing to worry about. However, even though you’re considering an extension, there are still a few things you need to know:
Understand what forms you need.
Your business type determines which form you’ll need to file when requesting a tax extension. Most businesses can use a Form 7004 to file for an extension, but sole proprietors need a Form 4868. The IRS website has extensive directions for both forms which is helpful, especially if this is your first time filing an extension. Find directions for Form 7004 here and for Form 4868 here. You also need to make your request in a timely manner, which means well before April 15.
Estimate what you owe…and pay that.
Filing a tax extension is a one-page form. The hardest part of the process is estimating how much tax you owe. Remember, a tax extension doesn’t give more time for payment. Whether you’re sending your extension form via snail mail or via the web, you still need to pay an estimate of the taxes you owe. And keep in mind that if you don’t send payment, the IRS could deny your extension.
Be as accurate as possible…and err on the side of overpayment.
The IRS can issue costly interest charges if you underestimate the amount of taxes you owe. And, if you don’t make a good estimate, or are far off from the actual total, you could be subject to a penalty charge.
To avoid penalties, a safe bet is to go ahead and pay 110% of what you paid last year when you file your tax extension. So, if you owed $10,000 last year, make sure you pay $11,000 in your estimate. (If you don’t typically owe money when you file taxes, no need to pay anything with your extension.)
And don’t worry about overpaying! If you file and end up owing less money than the previous year, you can get refunded for the extra amount paid, or apply that excess money to filing next year’s taxes.
Deadlines are essential when you file for a business tax extension.
Tax extensions are due by your original tax deadline, whether that’s March 15 or April 15. After that, you have six months from the tax extension deadline to finish filing your taxes — so September or October, depending.
Wondering which tax extension deadline you qualify for? The individual and c-corporation deadline is April 15. In recent years, the IRS moved the deadline for partnerships, s-corporations, and LLCs to March 15. So, depending on which category your company falls under, your business tax extension will be due by one of these two deadlines.
Complete an official return in the fall.
While you can file for a tax extension, you’re going to have to face your taxes eventually. Keep your new deadline in mind as you prepare for your fall. If that means avoiding business trips, skipping workshops and sending a representative to trade shows in your place in the name of getting taxes done, that’s just what you might need to do. For the time being, though, you can rest easy after your extension is accepted and use your newly found time wisely.
How do you file a state business tax extension?
Check with your state tax authority. From there, fill in the appropriate form, pay the estimated taxes by the due date, and submit the form by the extension deadline.
Where do I mail my tax extension form?
Check with your local jurisdiction. When in doubt, there’s always the IRS customer service hotline at 1 (800) 829-1040.
How much does it cost to file a tax extension?
It’s free! The only money you need to account for is your tax estimate.
Is there a penalty for filing a tax extension?
No, there is not! As long as you pay your tax estimate when you file your tax extension, there should be no penalty charges.
How do I know if my tax extension was accepted?
There’s an IRS customer service number that you can call to check and see if it’s been accepted, but you should receive notification.
What happens if I miss the tax extension deadline?
If you miss the tax extension deadline, that also means that you missed the general tax deadline. You’ll be charged a failure to file and potentially a failure to pay penalty from the IRS, but if you remedy them, you and your business will be OK.
In addition, if you’re late on filing an extension, you’ll need to hop on filing your taxes as you will no longer be able to extend your deadline to 6 months later. The sooner you file, the better.
What happens if I don’t file taxes?
Most of the people who don’t owe tax ask, why should I file? While that’s a larger question outside of business tax extensions, the bigger problem here is that you could miss out on a tax refund or tax credit.
The biggest tax credit that Acuity has found for the small businesses we work with is the Research and Development Tax Credit. Some startups have decided to not file tax returns, but since the rules for the R+D Tax Credit have changed in recent years, they should reconsider. While you file it with your federal tax return, if you pay payroll taxes, this can offset them going forward. In addition, some states offer R+D tax credits so don’t forget to check for potential credits there, too!
Tax services at your fingertips with Acuity’s help.
If you have further business tax extension questions, if you think your business might benefit from a tax extension, or if you think a business tax extension is inevitable at this point, learn more about our small business tax services or get in touch with us! We’re here to help!
And P.S. for next year, keep this small business tax prep checklist handy to ensure that you stay ahead of the game!