Did you know that both individuals and businesses are allowed to ask for a tax extension? There are several reasons you might want to file for a business tax extension, though not all requests to extend your filing deadline will be approved. Either way, it rarely hurts to at least request one, as taxes shouldn't hold entrepreneurs back from growing their business. If you need more time to file your business taxes, here are some details to consider.
A business tax extension is a formal approval granted by the Internal Revenue Service (IRS) to file your annual business income tax return six months later than the usual tax deadline. This extension solely regards your tax forms, not your tax due date. You must still pay your business quarterly taxes on time after filing an extension form or having your request approved.
Pros
Cons
Some reasons why a small business owner like yourself might want to request an extension include:
For tax year 2019, the IRS pushed the business tax deadline back from April 15, 2020 to July 15, 2020. For tax year 2020, the IRS pushed the deadline back from April 15, 2021 to May 17, 2021. That said, the IRS has yet to highlight pandemic business impacts as a valid reason for business tax extensions. Ultimately, the pandemic is unlikely to affect your chances of having your extension application approved or denied.
To avoid state and IRS fines and penalties, you need to estimate the amount and pay taxes by the due date.
The IRS rule is that you must pay at least 90% of income taxes along with self-employment taxes during the year.
For a way to get a general idea of what taxes are due, review this article from The Balance Small Business: How Do I Calculate Estimated Taxes for My Business?
Filing for a business tax extension is typically a simple process. That said, it varies somewhat based on your type of business entity.
Sole proprietors and single-member LLCs must use IRS Form 4868 to apply for a business tax extension. Doing so is free via the IRS Free File tool if your business income is under $72,000. The most recent deadline to file for an extension was April 15, 2021.
Partnerships, multi-member LLCs, and S and C corporations must use IRS Form 7004 to file for an extension. You’ll need some basic information about your business structure and fiscal year before filing Form 7004. The most recent deadline for partnerships and S corporations to complete this form was March 15, 2021. C corporations had until April 15, 2021.
As explained above, i f you need to file a business tax or personal tax extension, there are two forms available.
You can apply for a business tax extension online through the IRS website. As mentioned earlier, some sole proprietors can use the IRS Free File tool. Other sole proprietors – and all other types of business owners – should use the IRS eFile service instead.
Alternatively, you can file your business tax extension request through most major online tax filing software platforms. TurboTax, for example, is equipped with a tool that uses your answers to several simple questions to determine which form you must file. It then helps you file the form and notifies you if you’re approved.
If your business tax extension request is approved, you’ll have more time to sort through your expenses and figure out which ones qualify as deductions. Some expenses you and your accountant should look at to find deductions include:
State guidelines for filing extensions are varied. In some cases, unless you owe state taxes, your federal automatic extension can also extend your state returns as well. Refer to the tax form instructions or tax help for your state before you request a state extension.
Use this search tool from the Federation of Tax Administrators to locate your state tax agency's current website: State Tax Agencies.
Note that each state decides which tax payment option is offered to businesses. Some require businesses with larger tax liability to make electronic payments, some jurisdictions do not support electronic payments.
To make the best of your business tax extension, consider implementing the tips below:
Filing your taxes properly is essential to any business, but small business owners that wear many hats may need a little extra knowledge on this subject matter. Here are some good SmartBiz Loans ® resources you can utilize as you make your tax plan for the year. Be sure to work with a tax professional if you need guidance or have questions.
Information contained in this article is for educational purposes and not intended to be tax advice. Be sure to work with a tax professional if you need guidance or have questions.