How to File a Tax Extension for My Small Business?

Even the most well-organized small business owners can find themselves facing a looming tax filing deadline with critical tasks still outstanding. This might include gathering and organizing financial information, clarifying uncertainties regarding tax deductions, or encountering scheduling limitations with your tax advisor. Additionally, delays in receiving reporting forms from other institutions can further complicate the filing process. 

The good news is that most business entities are eligible to request a tax extension for their small business. This blog will explore the key considerations for small businesses seeking a tax extension, including the implications of what filing a tax extension for my small business does and does not do, and the proper procedures for submitting the request. 

What is a tax extension and why you might need it? 

A tax extension is essentially a formal request made by individuals or businesses to the Internal Revenue Service (IRS) seeking additional time beyond the standard filing deadline, typically April 15th, to submit their tax returns. This extension provides a grace period during which taxpayers can gather necessary financial documents, ensure accuracy in their filings, and complete any outstanding paperwork. 

For businesses, especially small enterprises, this extra time can be invaluable in sorting through complex financial records, navigating various deductions and credits, and ensuring compliance with tax laws and regulations. By delaying the filing deadline, businesses can alleviate some of the time pressures associated with tax season and strive for greater accuracy and completeness in their tax submissions. 

However, it's essential to understand that a tax extension does not translate to an extension for tax payments. Regardless of whether a taxpayer obtains an extension for filing their return, any taxes owed to the IRS must still be paid by the original due date to avoid potential penalties and interest charges. 

How to file a business tax extension? 

Tax season can be stressful, and sometimes you just need more time. Here's how to request a business tax extension: 

Before the deadline: 

• Act quickly: The key is to submit the paperwork to the IRS before your original tax filing deadline. Missing this deadline can lead to penalties. 

• Estimate and pay: Even with an extension, you'll need to estimate your tax liability and submit a payment with your extension request. 

Choosing the right form: 

• Sole proprietors & single-member LLCs: Use Form 4868 to request an extension for your personal income taxes, including Schedule C. 

• Other businesses: Corporations, partnerships, and most LLCs use Form 7004 to request a filing extension. 

Filing electronically or by mail: 

• Electronically: File your extension forms via the IRS's Modernized e-File (MeF) Program. Authorized providers can assist with e-filing. 

• By mail: Print and mail the completed forms to the IRS.

Additional tips 

• One extension only: The IRS typically grants only one extension per tax year. 

• Penalties apply after extension: Filing your return after the extended due date will likely result in penalties. File as soon as possible to minimize these. 

• Consider bookkeeping services: Some bookkeeping services offer integrated tax filing options. Explore this with your preferred service provider. 

IRS forms you might need depending on your circumstances 

If you own a business and you're rushing to meet tax deadlines, the IRS offers a few forms to help you get an extension. Here's a closer look at each form and what it's used for: 

1. Form 7004

Application for automatic extension of time to file certain business income tax, information, and other returns 

This is the most common form for businesses seeking an extension. It allows you to automatically request a six-month extension to file your federal income tax return (Forms 1120, 1120S, or 1065). 

Key points about Form 7004 

• Who can use it: Most businesses, including corporations, partnerships, and S corporations. 

• Extension length: Six months from the original due date (usually April 15th for most businesses). 

• How to file: You can file electronically or by mail. It's best to file it before the original due date to avoid penalties. 

• Estimated tax payments: Even with an extension to file, you might still be required to make estimated tax payments throughout the year. 

2. Form 1138

Extension of time for payment of taxes by a corporation expecting a net operating loss carryback 

This form is for corporations that anticipate a net operating loss (NOL) for the current tax year. An NOL is when your business expenses are greater than your income. 

Form 1138 allows you to potentially offset the NOL by applying a refund from a profitable previous year's tax return. This essentially reduces your current tax liability. 

Key points about Form 1138 

• Who can use it: Corporations only. 

• Benefit: Potentially reduces current tax liability by applying a prior year's tax refund. 

• How to file: File it with your tax return or before the original due date. 

3. Form 5558

Application for extension of time to file certain employee plan returns 

Running a business often means managing employee tax returns as well. Form 5558 gives your company more time to gather the necessary information and complete these employee tax filings. 

Key points about Form 5558 

• Who can use it: Businesses that need more time to file employee benefit plan returns (like 401(k) or profit-sharing plans). 

• Benefit: Provides additional time to handle employee tax-related paperwork. 

• How to file: File it electronically or by mail before the original due date of the employee benefit plan return. 

4. Form 8868

Application for extension of time to file an exempt organization return 

This form applies to businesses that qualify for tax-exempt status under the IRS code (like non-profits or charities). Form 8868 allows these organizations to request an automatic three-month extension to file their annual information return. 

Key points about Form 8868 

• Who can use it: Tax-exempt organizations as designated by the IRS. 

• Benefit: Provides an additional three months to file the annual information return. 

• How to file: File it electronically or by mail before the original due date. 

Remember, while these forms grant you more time to file, they don't automatically extend your deadline for making any required tax payments. It's always best to consult with a tax professional to ensure you're filing the correct forms and meeting all your tax obligations. 

Pros and Cons of filing a tax extension 

A tax extension can be a helpful tool, but it's important to understand both the advantages and disadvantages before you decide to file one. Here's a breakdown of the key pros and cons: 

Pros

• More time to file: This is the most obvious benefit. An extension typically grants you an additional six months to file your tax return. This can be helpful if you're missing important documents, waiting for income statements, or simply need more time to gather your information and complete your return accurately. 

• Avoid late-filing penalties: The IRS imposes significant penalties for late filing. By filing an extension, you can avoid these penalties, even if you can't pay your tax bill in full by the original deadline. 

• Take advantage of tax law changes: Tax laws can be complex and change from year to year. If you wait to file your return, you might benefit from any retroactive changes made after the original filing deadline. This could potentially lower your tax liability. 

• Reduce tax preparation fees: Tax preparers often charge more during peak filing season. If you file an extension, you might be able to get a lower fee by waiting until things slow down a bit. 

Cons 

• Taxes are still due on the original deadline: This is a critical point to remember. While an extension gives you more time to file, it does not delay the due date for any taxes you owe. You're still responsible for paying your estimated taxes by the original deadline, or you might face interest and penalties on any unpaid amount. 

• Delayed refund: If you're expecting a tax refund, filing an extension will delay receiving it. The IRS won't process your return and issue your refund until you actually file it. 

• Increased stress: Having an extension might seem like a weight off your shoulders initially, but it can also lead to procrastination and increased stress later on if you wait too long to actually file your return. 

• Potential for errors: If you wait a long time to file after receiving an extension, you might forget some details or lose track of important documents, leading to errors in your return. 

Stay ahead of next tax season with smart recordkeeping! 

Having organized records makes filing your business taxes a breeze and helps if you ever face an audit. 

Need help? There are great resources available

• IRS paycheck checkup: This tool ensures you're having the right amount withheld from your paychecks, useful for business owners who are also employees. 

• IRS tax withholding estimator: This tool compares your estimated taxes to your current withholding, helping you identify any adjustments needed. 

Remember, these tools work best when combined with a thorough review by your small business accountant or accounting team. 

Conclusion 

Filing a tax extension buys you valuable time but remember to pay your estimated taxes by the original deadline. BookkeeperLive can help you stay organized, minimize errors, meet filing deadlines, estimate your taxes, and prepare for next year so you can avoid extensions in the future. 

FAQs 

1. Do I need to pay my taxes to get a filing extension? 

No, the IRS grants extensions to file, not to pay. You can request an extension even if you owe taxes. However, remember that the extension only applies to filing, not tax payment. Interest and penalties will accrue on any unpaid balance from the original due date (typically April 15) until the tax is paid in full. 

2. Is it bad to get a tax extension? 

Not at all! Extensions are a legitimate way to gain more time to file your return accurately. There's no penalty for filing an extension as long as you submit it by the extended due date (October 15 for federal taxes).  

3. Can I get an extension beyond October 15th? 

In rare situations, the IRS may grant an additional extension if you can demonstrate reasonable cause for the delay. 

4. Should I always get a tax extension? 

Extensions are beneficial when needed, but filing on time is generally encouraged. If your tax situation is straightforward and you have all your documents in order, aiming for the original due date helps avoid potential late fees and interest.