Filing a Tax Extension for Your Business Taxes
It's Easy to File an Extension Application Online
Are you considering filing an extension for your business taxes? Before you make the decision, here some things to consider, including how and when to file your extension application. An extension for filing is NOT an extension for paying. Even if you file an extension application, you must pay your taxes by the tax return due date or pay penalties.
The IRS automatically accepts extension applications, but the application must be filed. Even if you think you don't owe any taxes, it's best to file the application anyway.
The IRS has announced that victims of the February 2021 winter storm in Texas will have until June 15, 2021, to file federal income tax returns and make tax payments. This delay may also apply areas in other states that were declared disaster areas. The tax relief is for filing and payment deadlines for both business and personal tax returns starting February 11, 2021, including IRA contributions. You don't have to file an extension application if you can file and pay before June 15, 2021.
Estimating the Tax Due
You can avoid late-payment penalties by paying an amount designated by the IRS when you file your extension application. When you file Form 4868 for your personal taxes, you'll be asked to include an estimate of your tax liability. The IRS won't assess a penalty if you can show "reasonable cause" for not paying on time. You're considered to have reasonable cause for the period covered by the extension if:
- At least 90% of the total tax due is paid on or before your due date, AND
- The remaining balance is paid with your return (at the end of the extension)
Want to get an estimate of the tax you owe? This article includes some ways to calculate the estimated tax due.
Extension Deadlines - Two Types of Taxes
You may have two different tax returns to consider extending.
Your business tax return for a partnership or corporation. You must file an extension application separately for these types of business. A partnership return is an information return, so no tax is due, but you must still apply for an extension if you can't get the return filed by the due date.
Your personal tax return, with your business income included. This would be the case for pass-through business income. A sole proprietor would include income on Schedule C of a personal tax return. A partner or LLC owner or S corp owner would include business income from a Schedule K-1 on a personal return.
Tax Return and Extension Deadlines
The extension deadline is the same as the original tax return deadline. This also means that if the tax return deadline is changed for a particular year (because the due date is a holiday or weekend), the extension deadline is changed too. Here are the tax return deadlines for the current tax year.
Partnership tax returns (including multiple-member LLCs filing as partnerships): on Form 1065 must be filed by the 15th day of the 3rd month following the tax year-end. For calendar-year partnerships, the due date is March 15.
Corporation tax returns (including S corporation returns): The corporation tax return (Form 1120) due date is the 15th day of the 4th month after the end of its tax year. For a December 31 tax year-end, the due date is April 15. The due date for S corporations is April 15.
Which Tax Return Extension Form to Use
For Corporate and Partnership Taxes
To file an automatic extension of time for corporations, S corporations, partnerships, and multiple-member limited liability companies filing as partnerships use Form 7004. This form requires you to estimate the amount of taxes you will owe.
For Sole Proprietorships, Single-member LLCs, and Partners/LLC owners filing Schedule K-1
Due Dates for Extended Tax Returns
The due dates below are the legal dates set by the IRS for when the extended tax return is due. If the due date falls on a weekend or holiday in a particular year, the due date is the next business day. For the specific due dates for the current tax year, see this article on business tax return due dates, which is updated annually:
- Partnerships and multiple-member LLCs filing as partnerships must file their partnership returns by April 15. The five-month extension puts the extension due date as September 15.
- Corporations and S corporations must file their corporate tax returns six months after the end of their fiscal year. S-corporations all have a December 31 due date, so an S corporation tax due date is March 15, and the extension is due by September 15. Corporations can have any fiscal year-end, so you will need to calculate the due date for the tax return and extension. As an example, a corporation with a December 31 year-end must file corporate taxes by March 15. The six-month extension is due September 15.
- Sole proprietorship or single-member LLC (filing as a sole proprietorship) extensions are for six months, so they must submit their extension by October 15
If you are filing extensions for partnership and corporate taxes, remember that the extended return due dates may be different from the extension due date for your personal return.
Filing Your Extension Application Online
If you have tax due, you can get an extension by paying all or part of your estimated tax due and indicate that payment is for an extension. The IRS gives you several options for payment:
- The IRS Direct Pay system from your bank account
- The Electronic Federal Tax Payment System (EFTPS) (usually used for business taxes) which requires enrollment, or
- A credit or debit card (with a fee charged).
Should You File an Extension on Your Business Tax Return?
The decision to file an extension requires some thought and consideration. There are both benefits and drawbacks to filing an extension. For example:
- The benefits of filing the extension include extending your ability to fund a retirement plan and more time to get a more accurate count of all business expenses to save on taxes.
- The drawbacks of filing an extension include no extra time to fund an IRA, and you still have to pay the taxes due.
This is a decision best discussed with your tax professional.