Filing a Tax Extension for Your Business

Tax season can be a stressful time for business owners. With the myriad of financial documents to gather, calculations to make, and forms to fill out, it’s no wonder that many entrepreneurs feel overwhelmed. Fortunately, there’s a lifeline available in the form of tax extensions.

In this comprehensive guide, we’ll delve into the world of tax extensions for businesses. We’ll explore the reasons why businesses might need an extension, the step-by-step process to request one, and the important deadlines to keep in mind. By the end of this article, you’ll have a clear understanding of how tax extensions work and how they can be beneficial for your business.

What is a Tax Extension for Your Business?

A business tax extension works similarly to filing a personal tax extension. Essentially, you need to fill out your request for an extension by the tax filing deadline. If the extension is approved, then you’ll receive an extra six months to file the tax return for your business. 

Just like a personal tax return, you’ll also need to pay the taxes you expect to owe for your business when you file your extension in order to avoid penalties and fees. 

The form you have to submit to request an extension and the deadline to submit your extension depends on the type of business you own.

What is the Deadline to File a Tax Extension for Your Business?

Just like a personal tax extension, the deadline to file an extension for your business is the day that your taxes are due for your business. However, the due date of your business tax return varies based on the type of business you have. 

Keeping track of all the different tax due dates can be difficult, so we created this table below to help you keep things straight.

If any of the above dates fall on a weekend or federal holiday, then the due date is pushed to the next business day. 

It’s often a good idea to keep track of key tax dates on a calendar, so that you don’t miss anything important. For example, the failure-to-file penalty (the penalty that’s imposed if you don’t file your taxes on time) can amount to a staggering 25% of the total taxes owed. So, if you owe $10,000 in taxes, this can be an additional $2,500 in penalties for failing to file on time.

The failure-to-pay penalty is less than the failure-to-file penalty, but both penalties can cost you significantly in the long run. Therefore, staying aware of key tax due dates and payment dates is an important step in your yearly routine.

You’ll also want to be aware of estimated tax payment due dates throughout the year, so that you don’t inadvertently underpay your taxes and get charged late fees. These fees can also accumulate and cost you a lot of money by tax time.

Always remember that an extension to file is not an extension to pay. However, getting an extra 6 months to file can be a lifesaver when you’re dealing with complicated corporate tax laws, or trying to reconcile various income sources and expense records. Throughout this guide, we’ll explain how to use the additional time you have wisely, and what you should focus on getting done in the additional 6 months you now have to prepare your business’ tax return (or have your CPA or tax preparer do it for you).

Which Form Should I Use to File a Tax Extension for My Business?

To make matters more confusing, different types of businesses require different types of forms. Depending on which type of business you have, you’ll need to use one of the following two forms to request an extension to file your taxes:

• Form 7004
• Form 4868

Businesses That Use Form 7004

As a general rule, most businesses will need to file Form 7004 in order to request a tax extension. Essentially, if you aren’t reporting your business’s income on your personal tax return, you’ll need to use Form 7004.

The types of businesses that will need to file Form 7004 to file a tax extension include:

• Partnerships and multi-member LLCs
• C Corporations
• S Corporations

As mentioned above, S corporations, Partnerships, and Multi-member LLCs need to file Form 7004 by the third month following the end of the tax year. In contrast, C corporations have until the fourth month following the end of the tax year. For most businesses, this is March 15th and April 15th, respectively. 

In order to complete Form 7004 for your business, you’ll need:

• The business name, address, and contact info
• The business entity type and tax identification number
• The estimated tax liability

Businesses that Use Form 4868

Some business types are allowed to request an extension using Form 4868. This should only be done if you are planning on reporting your business income as part of your personal tax return on Schedule C of Form 1040.

The types of businesses that use a Form 4868 to file a tax extension include:

• Sole proprietors
• Single-member LLCs

As mentioned above, the due date for filing Form 4868 is usually April 15th.

Do I Need to Pay Taxes When Filing My Business Extension?

As part of filing your business tax extension, you’ll need to calculate the business’s estimated tax liability. While this amount is just an estimate, it should be fairly accurate. 

There are a few ways to estimate the amount your business will owe in taxes. If income hasn’t changed significantly, you can use last year’s tax rate to determine how much you’ll pay this year. However, you’ll want to take into account if you have additional expenses, or if any other circumstances have changed that could affect your tax rate. You can also use online tax calculators to determine how much your business will owe, or work with your tax preparer or an online tax software to do the calculations for you.

When filing for an extension, you should pay at least 90% of your business’s estimated tax liability. If your estimate is accurate, then you’ll avoid having to pay penalties or fines when you go to file your tax return. However, if you can afford to pay more than 90% of the estimated tax liability, then you should do so in order to give yourself some wiggle room when it comes time to file your return. 

Calculating Estimated Taxes for Your Business Tax Extension     

Calculating your estimated taxes on your business tax return is a relatively easy process if you’ve been keeping track of your expenses and deductions throughout the year. All you need to enter on the extension form when submitting your extension is:

• The total tentative tax that the business expects to owe
• The payments that the business has already made to the IRS
• The balance due, which is simply the total tentative tax minus the payments already made

If you’re including your business taxes as part of your Form 4868, then you’ll need to combine these totals with your personal taxes. You should not submit a separate Form 4868 for your business and for your personal income taxes.

How to File a State Extension for Your Business

Depending on which state your business is in, you may need to file a separate form to get a tax extension for your state taxes. Just like the federal extension, filing a state tax extension only gives you extra time to file your business taxes, not additional time to pay your state taxes.

Refer to the chart below to see what you need to do to file a tax extension in your state.

We do our best to keep the above information up to date. It’s essential to confirm the information in the above chart with your state’s tax website.

What are the Benefits of Filing a Tax Extension for My Business?

As a business owner, you want to make sure that you make the most of every dollar invested into the well-being of your business. Filing a tax extension could potentially save your business a lot of money. Here are just a few of the ways your business can benefit from filing a tax extension.

Avoid Unnecessary Penalties

The IRS can hit your business with a failure-to-file a penalty if you don’t file an extension or file your taxes by the deadline. The failure-to-file penalty is 5% of your unpaid taxes per month, as long as your tax return remains unfiled. 

The failure-to-file penalty does max out at 25% of your taxes owed, but that can become a large fine, depending on how much your business owes in taxes. Avoid the unnecessary penalty by filing a tax extension before the deadline.

Improve Filing Accuracy

Rushing to file taxes for your business could result in you missing out on thousands of dollars in tax savings. If you need extra time to review your expenses and look for potential tax credits, it’s better to file an extension than rush through your return. 

Common expenses for businesses include: office expenses, employee salaries and benefits, travel expenses (if the travel was for business purposes), advertising costs, marketing expenses, utilities, vehicle expenses, and so much.

Using the extra time to work with a tax preparer or properly calculate and categorize your business income and expenses yourself can potentially save you thousands in taxes. Therefore, using that extra time wisely is paramount after filing a tax extension.

Avoid Extra Tax Preparation Fees

A lot of small businesses outsource completing their tax return to a tax accountant. While this may be a good way to find extra savings, accountants tend to raise their rates as the tax deadline approaches.

If you file for an extension, you may be able to find a good accountant for a lower rate outside of the busy tax season. In addition, that accountant may have more time to spend combing through your business’s potential tax savings due to lower demand. 

Filing a Tax Extension for Your Business

Filing a tax extension for your business doesn’t have to be hard! IRSExtension.online makes it easy for you to file an extension for your business quickly and accurately. 

Make sure that you make the most of the potential savings that filing a tax extension for your business can offer, and get started filing your extension today!