Missing deadlines happens. Even for responsible business owners. However, some deadlines missed – those issued by the IRS for example – can cost you greater than others. That’s where a handy dandy business tax extension will improve both your status with the IRS and how much you owe in penalty payments.
Are there times when it’s not smart to use a tax extension? Absolutely.
Read on to learn when and why to use a tax extension for your business and how to do it.
When and Why to Use a Business Tax Extension
A business tax extension can gain you up to 6 months to get your tax information organized and sent into the IRS. The exact number of months depends on the type of business entity you operate.
Best practices on tax extensions are pretty basic. File a tax extension for your business if, and only if, you meet at least one of the following criteria:
You’re waiting to confirm the amount you owe with your accountant.
You need more time to pull together the information on your year’s expenses.
You’re still waiting on tax forms to arrive.
While there’s no penalty to business owners for filing an extension, filing your tax forms late even with an extension can still carry some added costs. What an extension changes for you is that amount:
One important note on tax extensions: an approved extension only delays the date by which your paperwork is due to the IRS. It does not delay the date by which you need to start paying the government what you owe. Those payments (at least 90% of the total you think you owe) are still due on the same date as your regular tax forms, which tend to be the same dates by when you must file an extension if that is the route you choose to take.
Your due dates will vary based on your business entity. Bookmark these dates in your calendar if they apply to yours:
Partnerships & S Corporations – Your tax forms or extensions are due by March 15. Since your income from both of these types of businesses comes through to your personal return via a K-1 form, your payment, if you owe, will be due April 15 along with your 1040 return.
C Corporations & Sole Proprietorships – Your payments, tax forms, or extensions are due to the IRS by April 15. If you’re able to pay at least 90% of your estimated taxes due by this date, with your filed extension, you may even be able to completely avoid the penalties outlined in the table above.
How to File a Business Tax Extension
Fortunately for those who need to, filing a business tax extension is fairly quick and easy. Plus, they’re almost always quickly approved. To receive your business tax extension, just:
- File the correct IRS form for your entity, before March 15 or April 15 as listed –
- Save your filing confirmation number.
- Receive notice of approval (most likely) or denial of your extension.
From there, continue working with your accountant to meet your new deadline. Double extensions are not allowed, so make your time count!