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28 September, 2022

Tax Extension Requests For Small Businesses

If you are a small business owner, you may have  an ongoing challenge to stay on top of all your tax issues and responsibilities. Your schedule is constantly filled with duties related to running your business. But there could be serious consequences to your company – including financial repercussions – if you don’t file your taxes completely, accurately and on time. 

As a small business owner, you may be overwhelmed and just too busy to assemble and organize all of the papers and documents in time for filing your business taxes by April 15. 

The good news is you have the option of requesting an extension with the IRS for your tax filing. 

Although an extension will not grant you extra time to pay what you owe from your business, it gives you flexibility for you to finalize all the details of your tax return. Even with a tax extension, you have to estimate how much your tax liability is and submit the dollar amount when you file the extension request. 

“You should have some idea of what your overall income and expenses were, and you are required to estimate what your tax liability is,” says Daniel Glassman, a tax attorney with Gunster law firm, based in Florida. “If you either don’t make that kind of good-faith estimate or are very far off, you could be subject to a penalty for failing to pay.” 

The IRS could also invalidate your extension. This invalidation would make your business liable for penalties and interest in addition to the taxes you owe. 

The good news is nearly all of the tax extensions received by the IRS are granted, according to Glassman. However, there are specific deadlines for tax extensions that differ for various business types.  For a C corporation, the extension is due by the 15th day of the fourth month after the end of the tax year. For an S corporation, the tax return or extension comes due the 15th day of the third month after the end of the tax year. 

When you file for an extension, it is vital that you have the relevant paperwork submitted to the IRS prior to the April 15 deadline.  If you do not file for an extension, and you don’t file and pay your business taxes on time, you will face late filing penalties. There are two potential penalties associated with these circumstances, according to the IRS. One penalty for filing late and another for paying late.

Steps to Filing a Business Tax Return Extension 

Filing a tax extension for your small business is a fairly straightforward process. Here are the four steps involved in seeking a tax extension for your company: 

Step 1:  Make an Estimated Tax Payment 

While you could be granted an extension on filing your tax return, you cannot postpone an IRS tax payment. If you are self-employed, you must make quarterly tax payments add up to be  close to the amount of your annual tax liability. Otherwise, as mentioned above, your business may be subject to severe penalties. 

Prior to filing an extension, be sure your estimated tax payments total 100 percent of the previous tax year’s tax liability, or 90 percent of the filing year’s estimated tax liability, whichever is less. 

Note: You will not have to file for an extension when you use an electronic payment method to make the estimated tax payment. When you submit the payment online, clearly note the money is for an extension.  

Step 2:  File Form 4868 for an Automatic IRS Personal Tax Return Extension 

Pass-through Businesses:  Partnerships, S corporations, sole proprietorships, and LLCs must pay small business taxes using their owners’ personal returns. In order to postpone filing a business tax return, begin by delaying your personal return. 

You will need to complete the IRS Form 4868 granting you an automatic six-month extension on your personal tax return. 

C corporation owners, called shareholders, do not need to delay their personal filing when they request a business tax extension. As a C corp employee and shareholder, you may file your personal taxes after you receive your Form W-2 and Form 1099-DIV, which provide information on salary compensation and dividend distributions.   

Step 3:  File Form 7004 for an Automatic Federal Business Tax Extension 

If you don’t own a disregarded entity, you will also have to file for a business tax extension. It is not possible to avoid this filing, as opposed to the personal return extension. A disregarded entity is a tax term. The word refers to an entity that, as the name implies, will be disregarded — or ignored — for federal income tax purposes. 

Fill out Form 7004 to request an automatic business tax return extension. LLCs, partnerships, C corps and S corps will all use the same form to request an extension. 

Step 4:  File a State Tax Extension 

You are encouraged to inquire with your state tax authority to determine if you need to file an additional extension form. A majority of states will accept a copy of your federal tax extension forms to request a tax return extension. Some statesare more strict, however. 

If you live in the state of Utah, you will also be responsible for paying the state’s income tax, as well.

Look to Drilldown Solution for Expert Tax Planning Services for Your Small Business 

Drilldown Solution delivers a seamless tax planning and compliance process.  As is the case with all of our programs, tax planning solutions are custom-made based on an individual’s needs, wants, and the goals of your business.  You can expect your business to greatly benefit from our dedicated team of tax experts, ensuring your tax planning needs are met quickly and efficiently.  

At the core of our tax planning services is the promise to you that we will devise a tax strategy aimed at reducing your liabilities and optimizing profits for your business. 

Our Provo, Utah Tax Planning Services are just what your small business needs.

Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.


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