Sometimes, for whatever reason, you may need more time to file your business tax returns. To avoid late filing of interest and penalties, you can make a formal request to the IRS for additional time to file your business tax return. In this guide, we’ll explain what a business tax extension is, how to file one, its deadline, and the consequences of missing the tax filing deadline without an extension.
What is a Business Tax Extension?
A business tax extension is an IRS provision allowing businesses additional time to file their tax returns. More specifically, the business tax extension only provides extra time to compile and prepare your business tax return documents — it doesn’t give you more time to pay any taxes due. This means all the taxes that your business owes are still due by the original deadline, and failure to pay by this deadline can result in penalties and interest.
Ideally, the business tax extension is designed to help businesses avoid penalties for late filing. Note that you must file an extension by your original tax deadline to avoid potential late-filing penalties.
What Forms Do You Need to File for a Business Tax Extension?
The forms you file for a business tax extension will depend on the structure of your business.
Form 7004
This is the Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. It’s primarily for partnerships filing Form 1065 and corporations filing 1120 and 1120-S.
Form 4868
This is the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Sole proprietors and single-member LLCs reporting their business income on their personal tax return can use this form to request an extension for filing their Schedule C with Form 1040.
Form 1138
This is the Extension of Time For Payment of Taxes By a Corporation Expecting a Net Operating Loss Carryback. It’s used to extend the time for payment of tax for the immediately preceding tax year if a corporation is expecting a net operating loss in the current tax year.
How to File for a Business Tax Extension?
Here are the steps to follow if you’re filing for a business tax extension:
- Identify the Correct Form: Most businesses will need to use IRS Form 7004 to file for an extension. However, if your business expects a net operating loss in the current tax year, use Form 1138 to extend the time for payment of tax for the immediately preceding tax year. For sole proprietors, use Form 4868 to request for extension – this is meant for individual income tax returns.
- Estimate Your Tax Liability: If you think you’ll owe taxes, estimate the total amount. To get the extension, you must estimate your tax liability on the extension form and also pay any amount due by the regular deadline.
- Submit the Form: You can submit business tax extension forms electronically through the IRS e-file system or mail them to the IRS. Remember to submit the form before the regular due date of your tax return.
What are the Benefits of Filing for a Business Tax Extension?
Primarily, filing for a business tax extension gives you breathing room to get all the necessary documentation needed. Here are the benefits of filing for a business tax extension:
- More time to gather information especially if you’re still waiting on tax documents to arrive, or if you need more time to track down receipts or other records.
- Reduced errors since more time allows you to double-check your tax return for errors, avoiding the risks of IRS audit or penalties.
- Less stress because the extension gives you some breathing room during the stressful tax season, especially when you’re rushing to meet a deadline.
- Avoid late filing penalties if you can’t file your return by the deadline. But keep in mind that an extension doesn’t give you more time to pay any taxes due.
Are There Different Requirements for Different Business Structures?
Yes, there are different requirements for filing a business tax extension depending on the type of business structure. Here’s a general overview:
- Sole proprietors and single-member LLCs usually report business income with Form 1040 on the owner’s personal tax returns. In this case, a business tax extension is filed using Form 4868, which is used for personal income tax extensions.
- For partnerships and multi-member LLCs that file partnership returns using Form 1065, a business tax extension is filed using Form 7004.
- For C corporations and S corporations that file a corporate tax return using Form 1120 (for C corporations) or Form 1120S (for S corporations), a business tax extension is filed using Form 7004.
When is the Deadline to File for a Business Tax Extension?
The deadline to file for a business tax extension with the IRS depends on the structure of your business structure and the type of tax return you are filing. Here are the general deadlines:
- Sole proprietors and single-member LLCs: Since business income is reported on personal tax returns using Schedule C with Form 1040, the deadline to file for an extension is April 15, the same as the personal tax return deadline.
- Partnerships and multi-member LLCs: The deadline to file for an extension is March 15.
- C corporations and S corporations: These businesses need to file Form 1120 (for C corporations) or Form 1120-S (for S corporations). The deadline to file for an extension is March 15.
Once you file for an extension, the IRS usually gives you an additional six months to file your tax return. Note that these dates can vary if they are on a weekend or holiday. Also, the IRS can make extension filing exceptions for taxpayers in certain disaster areas.
What Happens If You Miss the Business Tax Filing Deadline Without an Extension?
Here are the consequences of missing the business tax filing deadline without an extension:
- Late filing penalties: The IRS imposes a penalty for late filing, usually 5% and not exceeding 25%, of the unpaid taxes for each month or part of a month that a tax return is late.
- Late payment penalties: This is usually 0.5% of the unpaid taxes, for each month or part of a month after the deadline.
- Interest charges on unpaid taxes are determined quarterly, based on the federal short-term rate plus 3%.
- Loss of refund: If you’re due a refund but fail to file, then you could lose your refund. You have a three-year deadline from the original due date to claim your refund.
FAQs
Why do you need a business tax extension?
You might need a business tax extension if, for any reason, you’re unable to complete filing your tax return by the original due date, which can help you avoid late filing penalties. Note that a business tax extension only gives you more time to file your taxes; you still have to pay any taxes due by the original due date.
Do I need to file for a business tax extension?
You may need a business tax extension if you can’t complete your tax return by the due date. Simply put, if you need more time to file your taxes, request an extension. In this case, file for a business tax extension with the IRS to avoid potential penalties.
Is there an automatic business tax extension?
Yes, the IRS provides an automatic 6-month extension for certain business income tax, information, and other returns when you file Form 7004 or Form 4868. Also, note that the IRS can make extension filing exceptions for taxpayers in certain disaster areas.
Do I need to pay estimated taxes when filing for a business tax extension?
Yes, even if you file an extension application, you must pay any outstanding taxes by the original deadline to avoid late-payment penalties and interest.
When should I consider seeking professional help with filing for a business tax extension?
If you’re unsure of when or how to file a business tax extension with the IRS, it’s advisable to seek professional help. You can also contract the services of a part-time CFO, to handle all your tax needs.
Conclusion
A business tax extension gives you some breathing room, allowing you more time to file your tax returns, ensuring they are accurate and complete. However, this extension doesn’t give you more time to pay your taxes, which means you have to estimate and pay any tax liability by the original due date to avoid potential penalties and interest.
Throughout this guide, we’ve discussed everything you need to know about filing a business tax extension: from the forms you need to file depending on the structure of your business, the deadline to file the extension, and the potential consequences if you miss the filing deadline. However, these are general guidelines and the specifics can vary based on your business structure and the specific tax situation of your business. That’s why when in doubt, it’s advisable to consult tax professionals to understand the exact tax requirements for your business.
