Everyone knows that dreaded feeling when tax deadlines sneak up quicker than anticipated. In the event you want extra time to file your return, a tax extension can provide you some respiratory room. Simply request an extension by filling out IRS Form 4868 by the April 15 submitting deadline. It will grant you till Oct. 15 to file with out dealing with penalties.
However there are some issues to know earlier than you go down that highway. Listed below are among the prime questions and solutions about enterprise and private tax extensions, from some tax specialists.
1. What’s the largest false impression about tax extensions?
All of the specialists Success.com spoke with stated the largest false impression is that tax extensions offer you extra time to pay up. In actuality, you simply have extra time to file your tax returns. You continue to have to pay your taxes by the unique April 15 deadline.
“A number of penalties could apply to each private and enterprise tax returns when you don’t pay what you owe by the unique due date of your return; when you don’t file or request an extension by the unique due date of your return and present a steadiness while you finally file your return; when you do file an extension however don’t file by the prolonged deadline and present a steadiness while you finally file your return; or when you didn’t pay your required quarterly estimated funds final 12 months,” says Logan Allec, CPA and founder at Choice Tax Relief. These penalties embrace:
● Failure to pay penalty (when you don’t file an extension): The failure-to-pay penalty is charged while you don’t pay your taxes on time and is calculated as a share of the unpaid tax quantity. Based on the IRS website, this penalty “is one-half of 1% for every month, or a part of a month, as much as a most of 25%, for the quantity of tax that is still unpaid from the due date of the return till the tax is paid in full.”
● Interest on unpaid tax (when you don’t file an extension): This penalty is charged on any unpaid tax from the due date of the return till the cost date in full. “The rate of interest is decided quarterly and is the federal short-term price plus 3%. Curiosity compounds day by day,” in accordance with the IRS website.
● Failure-to-file penalty: In the event you owe tax and don’t file on time, there’s a penalty (even with extensions). The failure-to-file penalty is usually 5% of the tax owed for every month, or a part of a month that your return is late, as much as a most of 25%.
● Underpayment of estimated tax penalty (when you don’t make your quarterly estimated tax funds): In the event you fail to pay sufficient taxes via withholding or estimated funds, you would possibly incur a penalty. The penalty, in accordance with Allec, “accrues on any unpaid or underpaid estimated tax cost from the date the cost is due till the sooner of when the estimated tax cost is made or the due date of the return. The underpayment penalty is… equal to the federal short-term price plus 3%.”
2. How do I do know what to pay for my taxes if I haven’t filed a tax return?
“[Do] your greatest to compile the knowledge that you’ve got,” says Andrea Harrington, CPA and accomplice at Fiondella, Milone & LaSaracina LLP and use that to estimate. It’s also possible to use tax software program or give the knowledge to your tax preparer to calculate an estimated tax.
3. Are the submitting dates for all private and enterprise tax returns the identical?
No. April 15 is the deadline for many varieties of tax returns, and it’s additionally the deadline to file for many varieties of tax extensions. Nevertheless, S company and partnership tax returns are normally due on March 15, and extensions have to be filed by then, Allec says. “There’s some confusion about deadlines, as a result of the dates modified just a few years again for S corps and partnerships.”
S corporations are companies that cross company earnings, losses, deductions and credit on to their shareholders for federal tax functions. Shareholders then report these pass-through earnings and losses on their private tax returns, the place they’re taxed primarily based on their particular person earnings tax charges. Many small companies function as S firms.
4. Do I have to file for a state tax extension if I’ve filed for a federal tax extension?
Typically. In lots of states, such as California, you don’t should file a separate state tax extension. Different states, similar to New York, require that you simply do.
In the event you reside and work/have a enterprise in one of many states with no state income tax, you don’t want to file a state earnings tax return or request an extension. There are some exceptions. In case you have a C-corporation in Florida, which doesn’t have a state earnings tax, you have to pay a 5.5% corporate income tax.
For federal earnings tax functions, a C corporation is handled as an impartial taxpaying entity. It operates as a enterprise, generates earnings or losses, pays taxes and distributes earnings to its shareholders. Most huge companies function as C firms.
To find out your state tax extension guidelines, verify your state’s division of income or division of taxation web site for the newest info, says Allec. It’s also possible to verify the extension guidelines in your state’s tax types, he says.
5. When is submitting a private or enterprise tax extension a sensible transfer?
Listed below are among the primary causes:
Ready for Okay-1 funding tax types
Schedule K-1 forms are tax paperwork that report a person accomplice’s, shareholder’s or beneficiary’s share of earnings, deductions, credit and different objects from sure companies. These types are utilized by pass-through entities, which don’t pay earnings tax themselves however cross the tax accountability to their members. Pass-through entities embrace partnerships and S firms.
Partnerships and S firms can request a six-month extension, transferring the deadline to Sept. 15 for calendar-year entities.
K1 returns are usually extra advanced, taking longer to finish, says Harrington. “We do get a flurry of them in August for our purchasers,” she says.
Monitoring audit outcomes
“If you’re beneath audit, you would possibly need to wait to see what the outcomes of the audit are,” says Harrington, “in case there are positions that you simply’re at the moment taking which might be challenged or [reversed].”
For instance, throughout an audit, the IRS would possibly problem your auto use share when you can’t substantiate the enterprise use share, she says.
Anticipating modifications to laws
One more reason to file an extension is to see if there’s any pending laws that might change your submitting place, Harrington says. “The federal authorities made some modifications to analysis and growth capitalization insurance policies plenty of years in the past, and there was a number of legislative buzz that triggered individuals to increase to see if the power to at the moment deduct these prices could be reinstated,” she says.
It didn’t occur, but when it had, the individuals who filed tax extensions could have been capable of reap the benefits of that change. (The American Innovation and R&D Competitiveness Act of 2025 was reintroduced in March of this 12 months however isn’t more likely to change into legislation in time to have an effect on this 12 months’s tax return.)
Including cash to enterprise retirement accounts
One more reason to file an extension is as a result of it might offer you extra time to place cash into your outlined profit plan, says John Adams, CPA and proprietor of Bridgewater Tax and Financial Consulting.
Money steadiness plans are a kind of outlined profit plan that permits for a bigger tax deferral in comparison with 401K plans, Adams says. “These plans are utilized by small companies, high-income earners {and professional} corporations like docs and attorneys to defer extra taxes. Every year, an employer provides cash to a plan primarily based on a share of wage and an curiosity credit score.”
“Money steadiness plans are one sort of retirement plan that lets you deposit cash up till your submitting extension deadline,” Adams says. “Sure varieties of small enterprise retirement plans provide the identical possibility as properly, together with Simplified Employee Pensions (SEPs), solo 401Ks or SIMPLE-IRAs.”
6. If I reside and work in an space affected by a significant pure catastrophe, will I’ve extra time to file and pay taxes?
Typically, sure. For instance, people, households, and companies in Los Angeles County, California, qualify for tax aid because of the wildfires. The tax submitting deadline for 2024 tax returns for that space has been prolonged to Oct. 15, 2025.
It’s an computerized extension, says Allec, which implies you don’t have to file a tax extension to each file and pay your taxes by Oct. 15, 2025. It’s also possible to prolong your IRA and HSA contributions till Oct. 15, 2025, as properly, Allec says.
7. Ought to I file a tax extension?
“Folks ought to simply view it [a tax extension] as a software,” says Allec. “Like all software, it may be for good…. Extra time to fund your SEP, extra time to collect information [and] get your books collectively.”
Allec cautions that it may be simple to procrastinate. Oct. 15, the submitting deadline for individuals with extensions, can come up quick, and it is advisable to be able to file your returns.
Picture courtesy of fizkes/Shutterstock
