How to file for a tax extension
March 10, 2015
Filing your income tax can be one of the most arduous tasks that any small business owner can face. It’s easy to put it off because 1) it isn’t fun and 2) it’s a lot of work. Wouldn’t it be nice if the IRS could give you a break?
As it turns out, they do! Somewhat.
The IRS offers something called a “tax extension.” Individuals, S-corporations or C-corporations can request an extra six months to complete their filing. That means individuals would have until October 15, while corporations would have until September 15. However, the extension is on the paperwork only! The IRS still requires you to pay the amount that you owe for taxes by the original deadline.
One of the benefits of having the extension is that you get more time to get your paperwork together, which is great for busy small business owners. Plus, if you had a hard time finding a CPA to work with and understand your business, now you have more time to find the right one. In addition, you’re often automatically granted a state extension when you apply for a federal tax extension. But don’t take that for granted; be sure to double-check to make sure you have an extension on both.
Should you file for a tax extension?
The question then becomes whether or not you should go ahead and pay the IRS or wait and accrue penalty fees. Let’s break it down:
Say you’re an individual or an S corporation and you’ve been granted an extension. You have time to estimate the taxes you owe, so you decide to go ahead and pay the IRS what you think you will owe them. In order do that, you will need to use the form 1040ES to work out your estimated tax, as all businesses are different. As either an S corp or an individual, if you have been in
business for awhile, you can also refer to last year’s form.
Make note of all your income and deductions for this year’s form and see what the total tax was that you paid last year. Aim to pay 100 percent to 110 percent of that number to avoid underpayment and the resulting penalties and interest.
If you, as an individual or S corporation, decide not to pay at the first due date, be aware that the IRS charges 5 percent a month in penalties or up to 25 percent of the total tax. If your payment is more than 60 days late, you will be charged a minimum penalty of $135. For more information on paying estimated taxes, check out what the IRS has to say .
While it is true that you will most likely be given the extension, as 97 percent of the requests are fulfilled, do not take it for granted that it will happen. Be sure to give yourself plenty of time to figure out what you owe.
If you’d like to file for a tax extension, fill out Form 4868 for individuals or, for many types of corporations, fill out Form 7004. You can also use a service like FileLater.com for a small fee. Then let this extra time get to work for you!
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Jennifer Dunn is the Community Manager for GoDaddy Online Bookkeeping and the owner of Social Street, an Atlanta-based social media consulting firm with an emphasis on providing web content, she has transferred her passion for moving people with the written word into diverse experiences in marketing, market and media research, management, and communications. If she hasn't learned something new in a day then it's not time for bed yet.