You can request a business tax extension to file your 2021 business tax return if you need extra time to finish it. You must estimate how much you owe and send in that amount before the due date, even if you get an extension. Otherwise, the IRS has the authority to revoke your extension.
Table of contents
- How to Ensure That Your Tax Extension Request Is Accepted?
- When you make a payment, ask for a business tax extension
- How to File a Business Tax Extension?
- Is it possible to get a business tax extension?
- What Are Some Reasons for a Business to File a Business Tax Extension?
- How to file a business tax extension online for partnerships, S corporations, and C corporations?
- How to Complete Form 7004?
- How to Prepare and File Business Taxes?
- What are the tax implications of charitable donations?
- Benefits and drawbacks of business tax extension
How to Ensure That Your Tax Extension Request Is Accepted?
Although the IRS does not reject many business tax extension requests, there are a few reasons why it does not accept them. This data is intended for use in business tax extension applications for a variety of businesses.
Small firms file their business taxes as part of the owner's personal tax return on Schedule C. These are sole proprietorships and limited liability firms with only one member (SMLLCs). The Form 4868 business tax extension application covers both the company and personal portions of the tax return.
Use IRS Form 7004 to request a business tax extension for your corporation or partnership's tax return. The partnership return is an information return, hence there is no payment due.
Information from the business tax extension is included in the personal tax returns of partners, multiple-member LLCs, and S companies. If information from the business is delayed, these individuals may need to submit an extension on their personal tax return in addition to the business tax extension.
The extension application is automatic if you are filing a corporation or partnership tax return. However, you must still apply by the deadline and pay any taxes owed.
When you make a payment, ask for a business tax extension
You can also request a business tax extension by paying all or part of your estimated income tax due using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card, and indicating that the payment is for business tax extension. You won't have to fill out a second business tax extension form, and you'll receive a confirmation number to keep.
How to File a Business Tax Extension?
First and foremost, fill out Form 4868 or Form 7004 to request a business tax extension. The type of business you run will determine which one you utilise.
Sole proprietorships and limited liability businesses (LLCs) with only one member use Form 4868. If you record any business profits as part of your personal income on your Form 1040, you'll need to fill out this form to request a business tax extension. By April 15th, the IRS must receive the paperwork.
Partnerships and multi-member LLCs use Form 7004. The deadline for filing is April 15th.
Companies and S corporations both use Form 7004. The deadline for filing for companies and S corporations is March 15.
The majority of corporations are approved automatically, however, you should follow the instructions on Form 7004 for more details. The Modernized e-File (MeF) technology can be used to file Form 7004 electronically.
Thanks to the business tax extension, you'll have an extra six months to finish and file your business tax return. The IRS usually won't let you extend it for more than six months, although they may accept a lengthier business tax extension for businesses that operate in another country.
What Are Some Reasons for a Business to File a Business Tax Extension?
Taxes for businesses, on the other hand, can be complicated. Gathering all of your receipts can feel like a full-time job, especially if you're not the world's most organised person.
There are other times when circumstances are beyond your control. However, there may be certain compelling reasons to seek a company tax extension.
When you work for yourself, you have more time to save for retirement. Some people don't encourage filing a business tax extension, but if you find yourself in that scenario, a business tax extension allows you to contribute to your retirement accounts for an additional six months.
If you're self-employed and have a Simplified Employee Pension IRA (SEP-IRA), you can contribute to it up until the tax filing deadline including business tax extension.
For example, extending the deadline from April 15 to October 15 allows you to contribute to your retirement plan for an additional six months. This is useful if you're behind schedule and didn't meet your prior year's objective of investing 15%.
You have more time to organise your deductions with business tax extension
Sometimes things get confusing, and you'll need some time to find out which business tax deductions you can and can't claim. You can use the extra six months to work with a tax professional, such as one of our Endorsed Local Providers (ELPs), to find out the deductions and credits you're eligible for.
The new tax reform package, formally known as the Tax Cuts and Jobs Act, altered the way small-business tax deductions work by removing some non-business costs like travel and lunches with clients.
The good news is that only 0.4 per cent of tax returns were audited by the IRS last year.
The bad news is that being audited is a pain in the neck. The IRS usually initiates an audit because something doesn't match up. Perhaps there is unaccounted for revenue or a slew of deductions that appear to be too good to be true.
The Business tax extension is for you if you feel like you could use an extra six months to make sure all of your ducks are in a row. It's preferable to take your time and do things correctly than to become bogged down in the auditing process.
Is it possible to get a business tax extension?
You can't obtain a business tax extension on paying your taxes! The deadline of business tax extension only applies to the filing of your taxes, not to the payment of your taxes.
Taxes are paid quarterly by self-employed people and small businesses throughout the year. You should pay your taxes quarterly if you expect to owe more than $1,000 in taxes for your businesses.
If the due date falls on a weekend or a legal holiday, the payment must be made the next business day. Whether you extend or not, you may be eligible for a refund when you file your return.
Common deductions to think about
You can start exploring for further strategies to maximise your tax advantage once you've filed your business tax extension form. Many valuable write-offs are overlooked in the rush to file in the spring, so take advantage of the extra time to look into typical deductions like these:
Tax relief under COVID-19
COVID-19 continues to have an impact on small business finances, and the IRS continues to grant tax relief, despite the fact that several programmes have ended. This IRS guidance contains current COVID-related tax alternatives.
The Employee Retention Credit provides refundable tax credits against employment taxes to many firms. Others may be able to take advantage of permissible deductions such as paid time off and tax credits for enterprises with less than 500 employees.
You have extra time to explore these deductions with a business tax extension, but it can still be confusing.
Expenses for travelling
This deduction, which includes expenses like travel, lodging, and transportation-related charges including rental vehicles, taxis, trains, tolls, and more, is often underutilised by business owners.
Unlike meals and entertainment, which are only eligible for a 50% deduction, travel expenses are fully deductible. Examine your travel from the previous year and make a list of any meetings with clients or vendors, business meetings, facilities tours, meetings with your board or shareholders, conferences, and so on.
Deductions for personal use
You can claim those expenses on your tax return if you use a vehicle for business purposes. This deduction can be calculated in two ways: mileage or actual expenses.
The mileage approach, which costs 58.5 cents per business mile, is preferred by the majority of business owners.
Restaurants and entertainment
All those dinners, lunches, and early-morning coffee meetings add up to a sizable deduction, especially if you used the time to discuss business with a partner, potential client, vendor, or strategically.
Business owners are entitled to the full deduction in all of those instances so be honest about your actual expenses and underestimate.
Technology and office supplies
Whether you're replacing your phone, buying laptops, or getting iPads for everyone, the majority of your office supply and technology expenses can be fully expensed. This now includes sanitation materials as well as home office equipment for employees, thanks to COVID-19.
Keep track of all receipts and expenses to ensure that you get the most out of your tax refund.
Other business expenses
Keep in mind that you may be entitled to far more tax benefits than you realise. Because they don't grasp all of their options or are concerned about an audit, business owners regularly miss out on additional deductions.
There is no reason not to include the entire amount of all your business expenses if you keep proper records. Even if the IRS disagrees, the IRS's worst option is to deny it.
How to file a business tax extension online for partnerships, S corporations, and C corporations?
Form 7004 is required for all corporations and partnerships seeking a business tax extension on reporting their taxes. You're probably better using the IRS's e-file programme than filing a paper form. To get started, simply establish an account, and the website will walk you through the rest. You must complete a separate Form 7004 for each type of return for which you are asking for a business tax extension.
What Is IRS Form 7004?
When you file Form 7004, you're promised a business tax extension, but only if you estimate your tax due correctly, file by the appropriate time, and complete the form appropriately.
Form 7004 covers a wide range of returns and gives you an extra six months to file them. It does not, however, extend payment deadlines; the IRS must receive it on or before the usual tax deadline, which for certain businesses is March 15.
Who Fills Out Form 7004?
Most businesses can request a business tax extension to file certain tax and information returns by filling out Form 7004. For corporations, S companies, partnerships, and multiple-member LLCs filing as partnerships, the form functions as a business tax extension application.
A business tax extension to file Form 1041-A, the "Trust Accumulation of Charitable Amounts," an information statement, is one exemption. Form 8868 can be used to request an extension of time to file this form.
How to Complete Form 7004?
By IRS standards, Form 7004 is rather short. It merely requires you to input your company's name, address, and tax ID number. The tax ID number is usually the same as the employer ID number. Then, for the tax return, you'll be filing, providing the relevant code.
The form then asks if your company qualifies for the Internal Revenue Code's Regulations section 1.6081-5. Foreign corporations, domestic corporations that do business and keep books outside the United States, and domestic corporations whose primary source of income is from U.S. possessions all use this section.
Next, check the box for the reason if this is a short tax year for your business. Display the estimated total tax. This is the expected tax liability for that year's business.
Subtract the total payments and any credits applied to your account from the estimated total tax. Finally, display the outstanding balance. You can pay with a debit or credit card, but your company account should be used.
How to Prepare and File Business Taxes?
How and when you file your business taxes is determined by the legal structure of your company. While the process is usually the same, depending on whether you operate as a sole proprietorship or have another legal structure such as a corporation, partnership, or LLC, there are different documents to utilise and different dates.
Most firms today rely on computer tools to arrange and track transactions throughout the year, making this a much less frightening procedure than it formerly was.
If you use professional accounting software such as QuickBooks, Quicken, or Sage Peachtree, the data will be readily available and, in most cases, can be downloaded directly into your tax preparation software.
Gather your bank records, sales slips, paid bills, invoices, receipts, deposit slips, credit card statements, and cancelled checks-basically everything that demonstrates your company's income and expenses if you don't have accounting software.
Select the appropriate IRS form for your business
Sole proprietorship: You'll file a Schedule C with your personal tax return to record your business earnings and expenses.
If you're the member of your LLC, you'll report your earnings and losses on Schedule C of your personal income tax return, which you'll file alongside your 1040 tax return. For federal income tax purposes, an LLC with at least two members is considered a partnership, unless it files Form 8832 and elects to be treated as a corporation.
Corporations must file a separate Form 1120 corporate tax return. If you use tax preparation software, the programme will automatically prepare the appropriate form once you answer questions about your company.
S Corporation (abbreviated as S) For federal tax purposes, corporations are viewed as extensions of their shareholders, passing along income, losses, deductions, and credits to their owners.
The S corporation sends its shareholders a Schedule K-1, which details their share of the income and deductions for the tax year. In addition, the S corporation must file a tax return using Form 1120.
Partnerships: Partnerships are taxed in the same way as S companies are. All partners must receive a Schedule K-1 documenting their portion of the partnership's revenue and deductions for the year. The partnership would submit a Form 1065 to the IRS as an informative return.
What is the definition of tax liability?
The entire amount of taxes you owe to the IRS, state, or local governments in the United States is your tax liability. Tax liabilities include income tax, employment tax, capital gains tax, and outstanding past taxes. In the end, anything that requires you to pay taxes is a tax liability.
Is there anything you can do to reduce taxable income?
There are a variety of strategies that sensible business owners can use to reduce the amount of revenue that can be taxed, from business expenses to prudent investments.
Make judicious purchases and investments.
According to Milkwick, when you buy new equipment or services for your business, the timing of your acquisitions can affect your tax burden this year or next year. Beginning in January, make a list of what you're willing to invest in before the end of the year.
Make a financial investment in your employees. Finally, one of the most effective ways to reduce your taxable income is to reinvest earned money back into your company, particularly into your employees. This will reduce your tax cost while also boosting the possibilities of your team's success.
Employer contributions to retirement plans are also tax-deductible. Hiring talented personnel and investing in your firm can help you save money on taxes. According to the IRS, employers can deduct 401(k) contributions as long as they don't exceed the limits outlined in section 404 of the Internal Revenue Code.
Offering your employees matching, profit-sharing, or safe harbour contributions is a great way to boost morale, acquire top talent, and grow your business, because happy employees are more productive workers, according to research.
File on time
If you don't have tax software that will fill out the forms for you, you can get copies of the forms and instructions for filling them out at the IRS website.
Schedule C is filed with your income tax return, which is normally due on April 15th for sole proprietorships and LLCs. Schedule C is a simple document. It's only two pages long and includes a list of all of the expenses you can deduct.
To calculate your net profit or loss, simply subtract your business expenses from your earnings after you're through. You add the amount on your personal income tax form, together with all of your other personal income tax items, and mail or electronically submit it.
You compute your taxable business income in the same way whether you have a corporation or a partnership, although the forms are more extensive. These documents would be filed separately from your personal tax return as well.
Form 1065 with a Schedule K-1 for each partner is usually due March 15 for partnerships. S-Corps commonly submit Form 1120 S, which is due by March 15th.
Form 1120 is used by C-Corps to file their tax returns. The end of your business's tax year affects the due date of your tax returns if you're a C-Corp. You must file tax returns on or by the 15th day of the fourth month following the conclusion of your company's tax year. If your company's fiscal year ends on December 31, for example, the deadline for filing a corporate tax return is April 15.
What Happens If You Need More Time?
The IRS is quite tight about deadlines, and failure to meet them can result in severe penalties. That isn't to say you won't be able to get additional time if you need it; you just have to ask for it the right way. Getting a payment extension does not relieve you of your obligation to pay on time.
An extension will give you more time to organise your documents and papers, but you must still estimate how much tax you will owe, if any, and submit that amount when you file your extension request. If you don't, or if you greatly underestimate, the IRS may invalidate your extension, making you accountable for penalties and interest on top of any taxes you owe.
Is it Possible to Get a State Business Tax Extension?
If you live in a state that has an income tax, you must additionally file a state business tax extension. Each one has its unique protocol, so check your state's website for details. Many states, like the federal government, will allow you to get an automatic business tax extension. If you don't owe any state taxes, you can normally use your federal business tax extension to also extend your state return.
Programs for Tax Preparation Can Assist
This year, the majority of individual taxpayers will file their forms electronically. In recent years, the figure has surpassed 80%, as the IRS has made it easier to do so and the usage of tax preparation software has grown in popularity.
Although the IRS does not charge for e-filing, several companies that prepare returns for electronic submission do. There are both free and low-cost solutions, business tax extension.
As previously said, if your company employs bookkeeping or accounting software, exporting all essential data into the most well-known tax preparation packages is fairly simple. The programmes will guide you through a series of questions to determine which deductions you qualify for and will generate your tax return for you. The programme will then allow you to e-file directly from it, business tax extension.
You can prepare and file your taxes using a variety of trustworthy software applications, business tax extension. Each of these tax preparation software tools follows a guided interview structure that takes you through dozens of displays. You answer the questions, and the software calculates the answers and enters them into the proper fields on IRS forms and schedules.
The ability to import W-2s, 1099s, and other income records, as well as guaranteed accuracy for computations, help if you're audited, and technical assistance, are all important elements to look for.
You can also employ a professional accountant or tax preparer to prepare your return. If you choose this way, make sure you give yourself enough time to gather the necessary paperwork and schedule an appointment long enough ahead of time to avoid being caught off guard. The tax season has begun, and it will only become busier as the filing deadlines approach.
Obtaining a business tax extension
The IRS provides guidelines and specifics regarding the restrictions on its website, as well as the required forms for filing an extension. Single-member limited liability firms and sole proprietorships that submit a Schedule C with a personal return can also use IRS form 4868. (LLCs).
IRS form 7004 is used by corporations, limited liability companies, and larger businesses. This form, like an individual return, automatically requests a six-month extension to file your business's income taxes.
Forms for federal business tax extension can be submitted online. On its website, the IRS provides information about online fillable forms as well as information about authorised IRS e-file providers. Many bookkeeping platforms provide tax filing capabilities; check with your favourite tax filing or accounting service to see if this is a possibility.
It is not possible to avoid paying your taxes by filing an official business tax extension. The expectation is to pay the estimated tax liability. The business tax extension is solely to allow the remaining papers to be filed within the six-month business tax extension period.
There is no procedure for requesting a second extension beyond the one granted till October 15. After this date, a return can still be filed, but expect to pay additional penalties. However, in this scenario, it's better to be late than never to avoid additional penalties as a result of further delaying the filing of a return. A failure-to-file penalty is often higher than a failure-to-pay penalty, according to the IRS.
Preparing for the tax season
There are a few things you can do to get ready for tax season. To verify that the correct amount is withheld from each paycheck, the IRS provides a paycheck inspection tool.
A tax withholding estimator also compares one's estimated business tax extension withholding. These materials should be used in addition to any internal analysis carried out by your accountant as part of their expense review.
Knowing the laws about business tax extension, on the other hand, might assist you or your business team in making the best decision when it comes to filing before the deadline or delaying it for six months, business tax extension.
You can decide if filing a business tax extension is the best option for your business by working closely with your business tax extension preparer. Any changes in expenses or other peculiarities in tax legislation should be kept in mind by businesses.
If you think you'll benefit from more time, there's no reason not to take advantage of the IRS's extension.
What are the tax implications of charitable donations?
Individuals who make qualifying charitable contributions can deduct up to 60% of their adjusted gross income if they itemise their deductions on their income tax returns. Charitable contributions are not deductible for taxpayers who take the standard deduction.
Corporations can deduct certain charitable contributions, but they are limited to deducting no more than 10% of their pre tax revenue in any given year. Overpayments can be carried forward for up to five years. The type of gifts you make, such as cash, property, or stock, may also affect how your contributions are considered.
Some charitable donations are also deductible as business tax expense. The donation can be deemed a business expense if your company obtained a benefit in exchange for it, such as ad space or event sponsorship.
Is it possible to file Form 7004 electronically?
You have two options for submitting Form 7004: mail or e-filing. If you don't utilise a tax expert to submit your return, use the Modernized E-File system to e-file your business tax extension application.
You can also use your tax return preparation software to file your business tax return extension application online, or a tax professional can do it for you.
Where Should Form 7004 Be Sent?
The IRS has a table that shows where you should file Form 7004 depending on the sort of tax return you're filing and where your firm is located.
Form 7004 Filing Requirements
The deadline for submitting extensions on any federal income tax return is the same as the deadline for filing the return. The deadline for filing a tax return varies slightly from year to year. If the due date falls on a weekend or holiday, it will be postponed to the next working day.
You don't have to worry about your request being approved because this is an automatic business tax extension. Then, by the business tax extension deadline, you must file your tax return.
Due Dates for Corporate Tax Returns and business tax extension
Corporations must file Form 1120 tax returns, and taxes must be paid by the 15th day of the fourth month following the end of the fiscal year.
The deadline for filing and paying taxes for a corporation with a year-end date of December 31 is April 15. This is also the deadline for submitting an extension application.
Corporations have six months to file their tax returns after the extension application deadline, so they would have until October 15 to do so. The 15th day of the third month after the end of the partnership's fiscal year is the due date for partnership and multiple-member LLC tax returns, Form 1065.
For the year-end of December 31, the deadline is March 15. Before the 2015 tax year, this date was April 15. This is also the deadline for filing the extension.
Partnerships and multi-member LLCs have six months to file their tax returns after the extension deadline, so they would have until September 15 to do so.
Tax Returns for Businesses and Individuals, as well as Tax Estimates
The majority of business owners pay tax on their profits on their tax returns. Because the tax responsibility is passed on to the owner, these are known as pass-through taxes.
In some circumstances, the business owner's 1040 form includes a specific schedule that shows business income. Schedule C applies to sole proprietors and single-member LLC owners. Schedule K-1 is for partners, multiple-member LLC owners, and S corporation owners.
Furthermore, partnerships, S companies, and corporations are required to file a business tax return as well as a separate extension application.
Here are some examples of extension apps for different types of businesses:
For the preceding tax year, sole proprietorship and single-member LLC tax returns, submitted on Schedule C and included with the owner's personal tax return, are due on April 15. If you need an extension, you must file an extension application for a Schedule C and a personal return by April 15th, which is the tax return due date.
The 15th day of the third month following the conclusion of the partnership's tax year is the deadline for filing partnership tax returns (a month earlier than previously). Because most partnerships complete their fiscal year on December 31, partnership tax returns and extensions are due on March 15 of the following year.
S Corporation tax returns are due on the 15th of the third month following the fiscal (financial) year's end. Because all S corporations have a December 31 year-end, the extension application must be submitted by March 15.
Online Extension Application Forms and Filing
The extension application form you use is determined by the type of tax return you filed:
To file an extension application for personal tax returns, utilise Form 4868. Sole proprietors, partners, LLC owners, and S corporation owners are among them. Use Form 7004 to file a business tax extension application for business tax returns for partnerships, S companies, and corporations.
You can apply for an extension online, through your business tax software, or your tax preparer. You can also seek an extension by paying all or part of your anticipated income tax owed using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card and specifying that the payment is for an extension. You won't have to fill out a separate extension form, and you'll get a confirmation number to keep for your records.
Partnership returns are due in six months (including multiple-member limited liability companies filing as partnerships). The extended tax return is due September 15 for a partnership with a December 31 year-end.
S-corporation returns take six months to file. The extended tax return is due September 15 for all S businesses, business tax extension.
Returns for corporations are due in six months. The extended tax return is due on October 15 for corporations with a December 31 year-end.
6 months for sole proprietorships submitting Schedule C with their Form 1040, as well as single-member limited liability firms filing as sole proprietorships. The extended tax return is due October 15 for sole proprietors with a December 31 year-end.
If your corporation or partnership does not have a fiscal (financial) year-end of December 31, you must compute the number of months between the tax return due date and the extension. For a corporation with a September 30 year-end, the corporate tax return is due February 15, and the extended tax return is due August 15, the following year.
Two Warnings About Tax Return Extensions
Payments will not be extended! To avoid fines and penalties, make sure you send your tax payment along with your extension application by April 15, the deadline for filing your tax return. This includes both your personal and corporate tax liabilities.
Annual reporting to workers and contractors will not be extended. The deadline for reporting on W-2 forms and 1099-MISC forms cannot be extended, even if your company intends to submit an extension. The following year's deadline is January 31.
Timely submissions
It's difficult to know when to submit your extension application. In most cases, your application for an extension is due when your return is due. However, determining when a tax return, particularly a corporate tax return, is due can be challenging.
Because of where the due date falls on the calendar each year, the actual due date for returns fluctuates each year. The due date for a tax return is the next business day if the due date falls on a weekend or holiday.
Check for Errors and Report Information Changes
Make sure your application and tax return is free of mistakes. You submit your business taxes on Schedule C, or you file your business taxes as part of your personal tax return if you record income from a partnership or limited liability corporation (LLC).
You'll need to fill out Form 4868. The procedure of submitting an extension application is straightforward, but there are a few dangers to avoid. Include your entire name, mailing address, and social security number.
Make sure you're using the right tax identification number. The tax ID number on your extension is your personal Social Security number, not the number for your business, because your application is for a personal tax return.
If applicable, include (a) personal income, (b) business income, and (c) self-employment tax liability in your estimate. You might wish to use this straightforward tax calculator.
Calculate the balance due
You can either include your payment with your extension application or pay in another way, such as electronically. Keep in mind, however, that any payment made after the due date will incur penalties and fines.
You don't need to fill out Form 4868 if you pay your balance electronically. The IRS will handle your extension application immediately if you pay some or all of your tax electronically or by phone.
Complete the appropriate application form.
Make sure you're using the correct form for your business: Form 4868 is for small businesses and individual filers, while Form 7004 is for partnerships and corporations.
Make sure you're using the correct form for the current year as well. The revision year appears on the first page, in the upper right-hand corner. The year of the revision and the year of the return must be the same. If you're applying for your 2020 tax return, the revision date on Form 4868, for example, must be for 2020.
Submit the Correct Application Form
Make sure you're using the right form for your company: Form 4868 for small businesses and individual filers, and Form 7004 for partnerships and corporations.
Also, double-check that you're using the correct form for the current year. On the first page, in the upper right-hand corner, is the revision year. The year of the revision must be the same as the year of the return. The revision date on Form 4868, for example, must be for 2020 if you are filing an application for your 2020 tax return.
Hire a tax professional or use tax software
Using tax preparation software or a tax preparer is the best method to ensure that your business tax extension application is accepted. You can either file your business tax extension application online utilising software or have your tax preparer do it for you. The software will guide you through the procedure, pointing out any errors and ensuring that you use the correct form.
If you don't owe taxes or are getting a refund, there is no penalty for filing late, so you won't be penalised for neglecting to file or underpaying.
In that instance, technically, you are not required to file an extension application. But what if it turns out you made a blunder and you owe money? The late-filing penalty will then apply. Even if you're not sure, file the extension application.
Benefits and drawbacks of business tax extension
Businesses may ask if they should file for a tax extension as tax deadlines approach. The IRS has made a provision that has both benefits and drawbacks. Consider some of the benefits and drawbacks that a firm can encounter if it files for a tax extension.
More time to get your taxes in order
A tax extension might give you up to six months more to file your papers. An accountant will be less agitated and have a clear timeline for diving into a business's financial status once the regular tax deadline has passed. That extra time may even enable an accountant to uncover deductions that would otherwise go unnoticed.
The extra time will also allow the business to double-check computations, avoiding the need to file updated tax returns in the future. A company may be certain of how much money it owes and manage its budget accordingly.
It's not complicated
Many small business owners prefer not to fill out any more IRS paperwork because they don't want to deal with the jargon. Filing for an extension, on the other hand, is usually not a difficult or time-consuming process. Furthermore, the widely held idea that requesting an extension will result in an audit has little merit.
Avoid late filing fee
You may be able to avoid the late filing fee by requesting a business tax extension. The penalty for filing late is generally 5% of the outstanding taxes for each month or portion of a month that a tax return is late, according to the IRS. This penalty begins to accrue the day after the tax filing deadline and is limited to 25% of your unpaid taxes.
Disadvantages
Penalties can be there if payment is late
While filing business tax extension can assist prevent penalties for late filing, businesses may face a separate penalty if they pay their taxes late. Even if a business tax extension is granted, businesses can save money by submitting taxes as soon as feasible.
The late payment penalty ranges from 0.5 percent to 1% of the amount owed, and it accrues monthly beginning the day after the tax filing deadline, business tax extension.
Improper Schedule
Because of the extra time for submitting taxes, other business tasks may be postponed to finish the taxes after the customary deadline. While you focus on completing your taxes, important client targets and projects may stay on your to-do list.
Business may be required to wait for a loan
If a company wants to seek a loan, waiting to submit taxes could make the process more difficult. As verification of the business's revenue, some lenders want a copy of the most recent tax return. If a business does not file a tax return, it may be unable to obtain the funding it needs.
Filing a business tax extension has both advantages and disadvantages. Businesses can make the best decision for their circumstances and needs by familiarising themselves with tax regulations.
Steps to Prepare for Tax Season
Businesses often ramp up their tax preparation in the first quarter of the year. There is paperwork to be organised to produce an accurate return with no financial shocks for your business.
The deadline for filing your taxes is fast approaching, and many of your day-to-day decisions have a big impact on your overall tax responsibilities. By planning ahead of time, your company will be able to keep up with the flood of paperwork that arrives in the first few months of the tax year, business tax extension.
Organize your tax documents
Marc Scott, CPA of M. Scott and Company in California, said that planning heats up in January when businesses start sending and receiving important tax documents.
If you own a small business, getting a head start is extremely vital to avoid a last-minute rush. Connecting with a tax specialist can also assist you in sorting through the many documents, business tax extension.
When will you be able to file taxes?
The Internal Revenue Service (IRS) said last year that it will begin receiving and processing federal tax returns on January 27.
Whether you're working with a tax preparer or doing it yourself with tax software, you may start working on your returns as soon as you like. The IRS, on the other hand, will not examine or process your return until the official start date.
What do you need to bring to the tax preparer?
If you're dealing with a tax preparer, you'll need to provide some important documents. They'll need verification of your identity first. You must supply your Employer Identification Number, commonly known as a tax ID if they are preparing taxes on your behalf.
Your tax preparer will also need to know about your financial situation. This comprises total sales or service receipts, sales records, returns, business bank account interest, and other sources of income, business tax extension.
It also covers your inventory, the overall dollar amount of beginning inventory, the total dollar amount of ending inventory, items eliminated for personal reasons, and essential materials and supplies. Your company expenses will also be required by a tax preparer, as you may be eligible for various deductions and credits that reduce your overall tax liability.
Understand qualified deductions and credits.
Tax credits and deductions are important elements of the filing process. Taking use of deductions lowers taxable income for a firm while taking advantage of credits lowers your total tax burden.
There are a number of company tax credits available. The IRS website includes a variety of credits applicable to specific businesses, such as those for using biodiesel or providing specified services to employees, such as childcare.
Check with your tax preparer or, if you're using a tax prep software application, answer questions regarding your business operations so you don't miss out on any potential deductions or credits.
Take advantage of the most recent tax legislation
The 2017 Tax Cuts and Jobs Act made a number of changes to the tax law, many of which have an impact on businesses. The IRS provides thorough instructions for applying many sections of the law, despite the fact that there are several difficulties.
Various forms of businesses, such as sole proprietorships, partnerships, S corporations, and their shareholders, are eligible for the qualifying business income deduction. Qualified income, according to the IRS, must come from a trade or business and excludes employee pay, capital gains, interest, and dividend income.
Make a list of all business expenses.
Another approach to save time and hassle before tax day, according to Scott, is to have costs recorded, itemised, and categorised.
Working closely with your bookkeeping and accounting teams (if your company is large enough) or with outside support can please your tax advisor and put you in a position to get the most out of your expenses.
The IRS also has a business expenditure explainer that explains the many types of expenses that can be deducted.
Calculate the amount of payroll taxes you'll have to pay in the future. Your payroll taxes, like your costs and deductions, should be up to date and computed throughout the year as part of your projected tax payment plan.
Small businesses that need a little more time to pay their payroll taxes may qualify for an IRS payment plan, according to Jamal Ayyad, vice president of service delivery for SurePayroll.
You may be eligible if you owe less than $25,000 in total tax, fines, and interest and have filed all required returns. For additional information on how to apply for the payment plan, go to the IRS website.
Keep current with the tax issues in your home state. Some states borrow money from the federal government to cover their unemployment insurance obligations. If your state has taken but not repaid such loans, the credit against the Federal Unemployment Tax Act tax rate would be reduced, according to Ayyad. Employers in those states will have to pay extra as a result.
In addition to the federal return, most tax specialists will complete your state return. The important thing to remember is that state standards should be given the same level of attention as IRS rules.
Consider extending your contract
To obtain an automatic extension, fill out Form 7004. According to Scott, taking the extra time may be beneficial to a company. There may be a need for clarification on a tax issue to ensure that you comply with regulations, or some clients and customers may have been slow in getting the proper paperwork to your team.
The extension, however, simply gives you a grace period to file your final return; you must still pay any taxes you estimate you owe. Even if you underpay, filing an extension reduces the amount of money you must submit when the final return is due.
What would happen to your company if you had a medical emergency or an accident? Business owners should assess the situation and develop a strategy for ensuring the company's survival. Check with your attorney and accountant to see whether there are any tax advantages to succession planning.
According to Ayyad, organising these tax data now will make submitting business taxes easier and faster later.
To manage your costs and expenses you can use many available online accounting software.
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As a business, you must be diligent with employee leave management. Deskera People allows you to conveniently manage leave, attendance, payroll, and other expenses. Generating payslips for your employees is now easy as the platform also digitizes and automates HR processes.
Key Takeaways
- You can also request a business tax extension by paying all or part of your estimated income tax due using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card, and indicating that the payment is for business tax extension.
- First and foremost, fill out Form 4868 or Form 7004 to request a business tax extension. The type of business you run will determine which one you utilise. Sole proprietorships and limited liability businesses (LLCs) with only one member use Form 4868.
- Whether you're replacing your phone, buying laptops, or getting iPads for everyone, the majority of your office supply and technology expenses can be fully expensed. This now includes sanitation materials as well as home office equipment for employees, thanks to COVID-19. Keep track of all receipts and expenses to ensure that you get the most out of your tax refund.
- Form 7004 is required for all corporations and partnerships seeking a business tax extension on reporting their taxes. You're probably better using the IRS's e-file programme than filing a paper form. To get started, simply establish an account, and the website will walk you through the rest.
- When you work for yourself, you have more time to save for retirement. Some people don't encourage filing a business tax extension, but if you find yourself in that scenario, a business tax extension allows you to contribute to your retirement accounts for an additional six months.
- How and when you file your business taxes is determined by the legal structure of your company. While the process is usually the same, depending on whether you operate as a sole proprietorship or have another legal structure such as a corporation, partnership, or LLC, there are different documents to utilise and different dates.
- If you're the member of your LLC, you'll report your earnings and losses on Schedule C of your personal income tax return, which you'll file alongside your 1040 tax return. For federal income tax purposes, an LLC with at least two members is considered a partnership, unless it files Form 8832 and elects to be treated as a corporation.
- If you're dealing with a tax preparer, you'll need to provide some important documents. They'll need verification of your identity first. You must supply your Employer Identification Number, commonly known as a tax ID if they are preparing taxes on your behalf.
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Priyanka Tiku Tripathi
Priyanka Tiku Tripathi
Deskera Content Team
