Your Guide to Filing a Small Business Tax Extension
Any small business owner knows how important it is to keep a close eye on your bottom line. Part of effective financial management is planning for and paying your taxes. It can be easy for the tax deadline to sneak up on you each year, but you can file an extension with the IRS to get the extra time you need to submit your tax return.
It is no secret that managing business taxes can be overwhelming and complicated. Therefore, there are several reasons that you may consider filing for an extension. This guide will explain why you may need a tax extension, how to file a business tax extension, and how to complete Form 4868.
Why Would You Need a Business Tax Extension?
Sometimes you might need additional time to ensure you are claiming everything you can on your tax return to optimize savings. Or you might become aware of special business credits that apply to you or deductions you can claim. There are numerous types of small businesses, and most will face their own reasons for needing an extension sooner or later. Here’s what to know:
- Self-employed individuals may want to file for an extension to get an extra six months to make contributions to a retirement account.
- Setting up a Simplified Employee Pension IRA (or SEP-IRA) allows you to make contributions until the tax filing due date, including extensions.
- Another reason may be that you don’t have the help you need to file your return by the deadline.
- Tax forms can be tough to understand, so filing for an extension gives you more time to team up with a professional tax consultant who knows the ropes.
- You can make sure your returns are as accurate as possible with the right help.
Keep in mind you’ll still have to pay any income taxes and self-employment taxes that are due by the standard tax deadline. The extension only gives you more time to prepare your income tax return. If you fail to pay your required amount by the deadline, you could face severe penalties. Best practice is to aim to pay at least 90% in estimated tax payments of what you expect to owe.
When to File a Business Tax Extension
Your business structure determines your tax extension deadline, so be sure to know your deadline. Below are the applicable dates based on the type of business you own:
Corporations
Small business owners running an S corporation or a C corporation can file an extension with the IRS by March 15.
Individual Business Owners
Sole proprietors or single-member LLCs have until April 15 to file an extension.
Partnerships and Multi-Member LLCs
Partnership and other LLC owners need to file an extension by March 15.
You have until October 15 of that year to complete and file your tax return if the IRS approves the extension (which is sometimes done automatically). These deadlines are for businesses that pay taxes according to the calendar year ending December 31. Those with a different tax year need to file the extension by the 15th day of the third month after the end of the tax year of a corporation, and all others need to file by the 15th  of the fourth month.
Step-by-Step Guide to Filing a Business Tax Extension
Deciding you need a tax extension is the first step. Consider the benefits of all that extra time to get your documents in order and organized to make tax filing easier. Follow these three easy steps when you are ready to get started:
1. Find the Form
Your business structure will determine which form to use. Individual business owners use IRS Form 4868, and other types of businesses use IRS Form 7004. You can find these forms online or in paper format at your local library or post office. A professional tax advisor can also pull these forms for you.Â
2. Complete the Form
Make sure you read all instructions carefully when filling out the extension form. The IRS walks you through what to include in each section in their attached instructions. Small business owners can see the below section for detailed instructions on completing Form 4868 and what information you will need to gather.
3. Send the Form With Payment
Review all your information to ensure accuracy. Then you are ready to submit your form to the IRS along with your required payment. The IRS indicates that you can receive an automatic extension on your tax return when you pay electronically. This includes paying through:
- IRS Direct Pay
- Electronic Federal Tax Payment System
- Debit or credit card
- IRS2Go mobile app
You don’t have to file a paper or electronic Form 4868 using the above tools. You’ll just select Form 4868 as your payment type instead and include your payment date. This will automatically trigger an extension request. Make sure to keep your online confirmation as evidence of your payment.
Double-check that you are using the most recently updated tax form by confirming the date on the form in the upper right- or left-hand corner. Tax laws and forms can change regularly, so check with a tax professional if you have questions about these forms or ways you can file.
Sections of Form 4868
An extension puts off the date you can file your tax return, but you still need to pay taxes and know the correct estimates. Small business owners need to gather specific information about their income before completing Form 4868. Here are the sections of the form broken down:
Part I: Identification
You will need your name, address, Social Security number, and spouse’s Social Security number, if applicable.
Part II: Individual Income Tax
This section includes the following lines:
- Estimate of total tax liability for 2020 – Your total estimated taxes for the year
- Total 2020 payments – Payments you made
- Balance due – Subtract the amount you paid by the estimated total for the year
- Amount you’re paying – Ideally, you will pay the balance due, as calculated above. Those unable to pay the full amount should pay as much as possible to avoid accruing a lot of interest. You may also be charged a late payment penalty.
There are two check boxes to review to complete the form. One asks if you are out of the country and a U.S. citizen or resident, and the other asks if you file Form 1040-NR and didn’t receive wages as an employee subject to U.S. income tax withholding. Check as applicable.
Form 4868 is pretty short and straightforward. You can still file for an extension even if you can’t pay the total amount you owe for the prior year, but you will avoid penalties if you can pay everything on time. This means you can also get the payment out of the way to focus on optimizing your tax savings and filing your tax return by the extended deadline.
Contact a Tax Expert With Questions About Small Business Tax Extensions
Taxes are a significant consideration for any small business. You may need more time to get your tax return in order and accurate, so a business tax extension can be a great option.
Working with a tax professional can help you understand the benefits and risks of filing for an extension. The experienced attorneys at Silver Tax Group are skilled at finding the best outcome for our clients’ tax issues, whether they are small businesses or large corporations. Reach out to Silver Tax Group with questions about filing a small business tax extension.
