The tax deadline is looming and you're not ready to file yet. You may have to track down some straggling financial records, or maybe some other complication has cropped up to make it impossible to file your business return on time. Not to worry—the Internal Revenue Service has forms for that.
The process for filing an extension application for business taxes involves filing a simple form online. The form you use depends on your business type. In some cases, you may not even need to file an application form.
New 2020 Deadline to File and Pay Taxes
The IRS has moved the deadline for filing and paying 2019 income taxes to July 15, 2020. The deadline for extensions is also July 15. If you need extra time to file your tax return after July 15, you can file an extension application. You must still pay your taxes by July 15, even if you file an extension.
Extensions Requests and Audits
You may have heard that the IRS looks more closely at businesses that file extension applications. But the IRS doesn't select tax returns for audit based on whether the taxpayer requested an extension. They select tax returns for audit based on random selection and on screenings, comparing a tax return with "norms" for similar returns.
Why the IRS Denies Extension Requests
Form 4868 for personal tax returns (including business tax schedules) is an "Automatic Extension" - in the title of the form. Form 7004 for extensions for business tax returns (partnerships and corporations) is also automatic. There are just a few reasons why the IRS might deny your application request:
- If the request isn't filed on time (by the due date of the tax return)
- If there is no signature (on a paper-filed form)
- If you filed Form 2350 because you were living abroad and there's no indication you live and work in a foreign country.
You Can't Extend Payment
Even if you apply for an extension for filing your business income tax forms, you can't extend the payment deadline. You must calculate and pay any income taxes and self-employment taxes by the due date of the form. To avoid IRS penalties for underpayment and late payment, you should pay at least 90% of the tax due. To estimate the tax you must pay, you might want to use an estimated tax calculation.
Definitely request an extension if you're not prepared to file your actual return on time. The late filing penalty can be more expensive than penalties and interest associated with paying late. So get your extension request in, then address the nuts and bolts of preparing your return and figuring out what you owe.
How To File an Extension Application
Business tax on the personal return. Business owners who pay business taxes as part of their personal tax returns are called pass-through businesses. These businesses use Form 4868 to apply for an extension.
This typically includes:
- Sole proprietors and single-member limited liability companies (SMLLC) filing their business tax on Schedule C as part of their tax return.
- Partners in partnerships and S corporation owners filing a Schedule K-1 for their share of business tax liability as part of their tax return.
Owners of corporations receive dividend income as shareholders. Dividends are taxed on their personal tax returns. Corporation or S corporation owners may work as employees, and this income is taxed on their personal returns.
If you live and work abroad, there's a special extension application you must use if you expect to qualify for special tax treatment. File Form 2350 extension application for U.S. citizens and aliens abroad.
Business tax returns. Corporations and partnerships use Form 7004 to file an extension application for the business (not the individual owners). This includes corporations, S corporations, and multiple-member LLC businesses filing as partnerships, corporations, or S corporations.
The Easy Way to File an Extension Application
Extensions on Personal Tax Returns. if you are one of the pass-through business types listed above and you pay your business taxes through your personal return, there's an easy way to get an extension on your tax return.
You don’t need to file Form 4868 if you make a payment using one of the electronic payment options. The IRS will automatically process an extension of time to file when you pay part or all of your estimated income tax (1040-ES) electronically.
You can also get an extension by paying all or part of your income tax due and indicate that the payment is for an extension, using the IRS Direct Pay system, EFTPS, or your credit/debit card. You will receive a confirmation number for your records.
Extensions for Business Tax Returns. Form 7004 for corporations, S corporations, and partnerships can't be filed through the personal tax filing system. You must use the IRS Modernized e-File (MeF) platform.
E-File Using a Software Program or Tax Professional
All the major tax software applications allow you to file an extension using either Form 4868 or Form 7004. When you log on to prepare your return, there should be a tab or option for filing an extension. There may not even be a charge, although you'll eventually have to pay to prepare the return itself. You can use either the personal or home business version of the product to file Form 4868 or use the business version to file Form 7004. You can do this immediately, then go back days or weeks later to complete your tax return.
If You Don't Want to File Online
You can always file an extension application in the old-fashioned mail-in way. You can print out either form from the IRS website (Form 4868 and Form 7004) and get the mailing address for your location from the form, Mail it in as many days as possible before the tax deadline.
Don't Forget Extensions on State Income Taxes
States that have state income tax have different rules for extending the state return. Some states may go along with the IRS extension, while others (New York, for example) require you to file a separate extension. Check with your state's taxing authority to make sure you are complying with your state's requirements for filing an extension.