5 Ways to Make Sure Your Tax Extension Application is Accepted

Make Sure Your Small Business Tax Extension Application is Accepted

Make Sure Your Tax Extension Isn't Rejected
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The IRS does not reject many tax extension applications. But there are several reasons why they don't accept tax extension applications. I'll explain the reasons for the rejection of a tax extension and how to make sure your application passes all of these tests. 

This information is for extension applications for several types of businesses.

An Application Extension Isn't a Payment Extension

You can extend the time for filing your tax return, but you still must pay the taxes you owe by the tax due date. If you can't pay your taxes, the IRS has several tax payment relief options during the coronavirus emergency.

Small businesses that file business taxes on Schedule C as part of the owner's personal tax return. These businesses are sole proprietors and single-member limited liability companies (SMLLCs). The extension application, using Form 4868, covers both the business and personal parts of the tax return.

File an extension application for your corporation or partnership tax return using IRS Form 7004. The corporate taxes must be paid by the due date, but the partnership return is an information return, so no payment is due.

Owners of partnerships, multiple-member LLCs, and S corporations include information from the business tax return in their personal tax returns. In addition to filing the extension for the business, these individuals may need to file an extension on their personal tax return if information from the business is delayed.

If you are filing a corporate or partnership tax return, the extension application is automatic. But you still need to file the application before the deadline and pay taxes due. 

Two Warnings about Tax Return Extensions

There is no extension on payments! To avoid fines and penalties, make sure you include the payment for your taxes along with your extension application, by the tax return due date of April 15. That includes both your personal tax liability and your business tax liability (yes, self-employment taxes too.)

There is no extension on annual reporting to employees and contractors. Even if your business intends to file an extension, the deadline for reporting on W-2 forms and 1099-MiSC forms cannot be extended. That deadline is January 31 of the following year.

1. File on Time 

Knowing when to file your extension application is tricky. In general, your extension application is due when your return is due. But knowing when a tax return - and especially a business tax return - is due can be difficult. 

Each year the exact due date for returns changes, because of where the due date falls on the calendar. If a tax return due date is on a weekend or holiday, the due date is the next business day. Here's a list of tax return due dates for the current tax year.

2. Check for Errors and Report Information Changes

Make sure there are no errors on your application or on your tax return. you are reporting your business taxes on Schedule C, or if you are reporting income from a partnership or LLC, you will be filing your business taxes as part of your personal tax return. You will need to use Form 4868. The process of filing the extension application is fairly easy, but there are some potential pitfalls to watch out for. 

  • Include your name and address and your tax identification information. Make sure you use the correct tax ID number (Social Security Number or Employer ID Number). The tax ID number on your extension is your personal social security number, not the number for your business because this application is for your personal tax return
  • Your estimate must include (a) personal income, (b) business income, and (c) your self-employment tax liability if this applies. Here's a quick tax estimation calculator you might want to use. It's not exact, but it doesn't have to be.
  • Include how much you have already paid (in withholding, estimated taxes, or other payments), 
  • Calculate the balance due.
  • You can send in your payment along with your extension application or you can pay another way, including electronic payment options. But don't forget any payment made after the due date is subject to fines and penalties. 

You do not need to file Form 4868 if you are paying your balance due electronically. The IRS will automatically process your extension application when you pay part or all of your tax electronically or by phone. Read more about tax payment options

3. Submit the Correct Application Form

Make sure you are using the correct extension application form for your business type - Form 4868 for small businesses and individual filers and Form 7004 for partnerships and corporations.

Also make sure you are using the form for the current year. The revision year is on the upper right-hand corner of the first page. The revision year must match the year of the return. For example, if you are filing an application for your 2020 tax return, the revision date on Form 4868 must be for 2020. 

4. Make Sure Your Information is Correct

Did your business or personal information change? For example, if you changed your address since your last communication with the IRS, they may not be able to match your tax information to the extension application information. If your business or personal information changed, you must notify the IRS in a specific way, using Form 8822. 

5. Use Tax Software or a Tax Professional 

The best way to make sure your extension application is accepted is to use tax preparation software or a tax preparer. You can file your extension application online using the software, or you can let your tax preparer take care of the filing. The software will walk you through the process, telling if you missed something and making sure you use the right form. 

Do I Have to File an Extension Application if I Don't Owe Anything? 

If you don't owe taxes or you are getting a refund, the penalty for filing late is $0, so you won't have a penalty for failing to file or for underpayment. Technically, you don't have to file an extension application in this case. But what if it turns out that you made a mistake and you do owe money? Then the late filing penalty will kick in. Just to be sure, file the extension application anyway.

When Is My Extended Tax Return Due?

The time you have to complete your return depends on your business type. 

For small businesses filing Schedule C with their personal tax returns, the extension deadline is October 15 of the following year. (So the deadline for a 2018 tax year extension is October 15, 2018.

For partnership tax returns, the extension deadline is September 15.

For corporations and S corporations, the extension deadline is September 15.

See this article on the tax return and extension deadlines for the current tax year.

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