How To File a Business Tax Extension
Business is cyclical. There are highs, lows, and, most importantly, times to file your business tax returns. As Tax Day draws near, you’ll need all your receipts and invoices in the right places to file yours.
Of course, doing this isn’t a problem in an ideal world. Unfortunately, business and life are never ideal. Circumstances may prevent you from filing your business tax returns on time.
Do you just throw in the accounting towel and risk the IRS’s penalties? You don’t have to.
By filing a business tax extension, you’ll buy yourself enough time to have everything to prevent an audit.
Does this interest you? Learn more about how to file a business tax extension in this article.
Also, read to the end to find out whether or not getting an extension hurts you or your business in any way.
How To File an Extension Application
Filing a tax extension application begins with calculating your taxes. For this reason, we’ll start with determining your estimated tax obligations.
1. Determine Your Estimated Business Taxes
A crucial piece of information to include on Form 7004 or 4868 later is your estimated business tax. The estimated amount should be close to what an IRS agent would calculate as your tax obligations.
For this reason, you’ll still need an accountant to calculate your taxes for you. However, if you want to run the numbers yourself, here’s a good rule of thumb.
Ensure that it matches your business taxes from the previous year. If not, your estimated taxes must at least be 90% of the previous year’s.
2. File Your Personal Tax Extension Using Form 4868
Getting a business tax extension begins with filing an application with the Internal Revenue Service (IRS) for a personal tax extension. To do this, fill out a copy of the IRS Form 4868 online.
These forms enable you to request a six-month extension for filing a personal tax return. Doing this is a must if you’re running an LLC, partnership, or sole proprietorship.
After filing, you’ll receive a confirmation number. Write it down or copy it for future reference.
3. File Your Business Tax Extension Using Form 7004
After filing for a personal tax extension, you may now file an application for a business tax extension using the IRS’s 7004 Form.
The first piece of information you’ll have to include is the type of business tax return form you’re filing an extension for. This will depend on what type of business you are operating as regards entity.
4. File an Extension With Your State
If you’ve done steps one to three, you’ll receive an automatic six-month business extension. In many states, the extension will suffice. However, it’s still best to check with your state. To err on the safe side, check with an accountant to see your state’s requirements for business tax extensions.
Reasons To File a Business Tax Extension
Many business owners file business tax extensions for a variety of reasons. Here are some of the most common ones.
Unplanned Events or Circumstances
Sometimes, life happens. Whether it’s a natural disaster or major corporate restructuring, something can get in the way of you filing your business tax returns on time.
The good news is that you don’t need to provide a lengthy explanation of why you can’t file your returns. File for an extension if numerous circumstances get in the way of you doing your business taxes properly.
Document-related Issues
It happens. Receipts are disorganized. Invoices are nowhere to be found. When these issues take place, it’s better to defer your tax return filing to get your documentation in order. After all, nobody likes risking penalties due to negligence.
A Way To Avoid Late-payment Penalties
Once you fail to pay taxes on the date of tax filing, you’ll have to pay the IRS a penalty. The penalties can range from a few hundred to thousands of dollars, depending on your tax liabilities.
If you’re unsure about whether you can pay your business taxes on time, a legal way to avoid the penalty is to defer your tax return filing. You can do this by filing for a business tax extension.
Who Qualifies for an Extension on Business Taxes?
Under the IRS’s rules, individual business owners are eligible for business tax extensions. Individual business owners can range from sole proprietors to LLC members.
Besides individual business owners, corporations of any structure can also apply for business tax extensions.
Does Filing a Business Tax Extension Hurt You?
Filing a business tax extension won’t hurt your chances of getting a business loan, nor will it result in tax delinquency even if you file more than once.
However, keep in mind that filing an extension doesn’t excuse you from paying taxes. You’ll still have to pay your tax obligations — albeit six months past the deadline.
Another consideration to take into account is that more months equal more deductions to track. Leading up to your deferred filing date, you’ll have to take stock of numerous deductions and tax items. Doing this can be tricky, especially if you don’t have a reliable accountant on speed dial.
Tax Help? Get More Than That at Core Group!
Filing a business tax extension may be what you need to keep your taxes in order. However, an extension will not necessarily make your life less complicated. Between the time you receive an extension and the final tax return data are months of documenting your receipts and transactions.
However, what if there’s an easy way? Get tax comprehensive assistance with the Core Group. At the Core Group, we offer accounting and tax services that take the guesswork out of your business’s finances.
Choose a business financial service that’s comprehensive to the core. Find out more about what we can do for you by requesting a free consultation.