Have you had to file a business tax extension for the 2023 tax year? Or are you contemplating doing so for the 2024 tax year? Business tax extensions may seem complicated, but when you break them down, they are relatively easy to understand—especially if you have a professional CPA like those at Hayes & Associates as your partner. To make the matter more clear, here is all you need to know about what a business tax extension is, how to file it, the deadline involved, and possible penalties for not filing one in time.
What is a Business Tax Extension?
A business tax extension is a provision from the IRS that lets businesses take more time to file their business tax return documents though it does NOT give a business more time to pay any taxes due. All taxes that are due must be paid by the original deadline but the actual filing can be done later.
How Do You File for a Business Tax Extension?
Filing a business tax extension is relatively straightforward. First, you need to identify the right form. Most businesses will use an IRS Form 7004. However, if you expect a net operating loss for the current tax year, you can use Form 1138 to extend the time of paying the tax for the preceding tax year. Sole proprietors can use Form 4868 to file their extensions.
Next, estimate your tax liability and pay that amount by the original due date.
Finally, submit the extension forms through the IRS e-file system or mail them directly to the IRS.
What is the Deadline for Business Tax Extensions?
The structure of your business and type of return you are filing will determine your deadline for filing your business tax extension. For single-member LLCs or sole proprietors, the extension deadline is April 15. For multi-member LLCs and partnerships, the deadline is March 15. For S and C corporations, the deadline is also March 15. After you’ve filed your extension, you will have an additional six months to file your return.
Can You Be Penalized for Not Filing a Business Tax Extension?
If you are late filing your business taxes and do not file an extension, you can face penalties. First, you will have to pay late filing penalties which are anywhere from 5% to 25% of the unpaid taxes for each month or part of a month that your return is late. You will also have to pay late payment penalties, which are usually 0.5% of the unpaid taxes for each month after the deadline. Interest charges will be determined quarterly and are based on the federal short-term rate plus 3%. Finally, you will lose any refund you had due. However, you do have a three-year deadline from the original due date to reclaim it.
Working with a CPA to Understand and File Business Tax Extensions
Clearly, you do not want to face the penalties and fees that come with filing your business taxes late without an extension. That’s why it’s crucial to work with a professional CPA who can handle your business taxes and file any necessary extensions if needed. When you work with a CPA, you can get the burden of taxes off your shoulders and have peace of mind that your taxes will always be handled promptly and professionally.
