Filing an extension on your small business tax return is completely acceptable – as long as you follow the IRS’ guidelines. The date by which you must file for an extension depends on the type of small business you own.
One of the most important things to keep in mind when deciding if you’ll file for a tax extension is the fact that you must still pay quarterly estimated taxes by the original due date of the return. In other words, the paperwork can be late, but the money can’t.
Sole Proprietorships and Partnerships
If your small business operates as a sole proprietorship or partnership, your application for an extension is due the same day your regular tax return would be due, or April 15, 2013. This is also the day that quarterly estimated taxes are due, meaning that you would submit your payment at the same time you submit your extension paperwork.
Form 7004 must be filed by the due date of your tax return and payment. You do not need to submit the actual return at this time, simply complete form 7004 and submit it to the IRS along with your quarterly estimated payment
It is imperative that this form be submitted on time, and that you don’t underestimate the amount you owe the IRS. During other times of the year, you can get away with paying less than what you owe, but your April payment needs to be a payment in full. If you have paid less than what you owed during other quarters, your April payment should also include those additional monies owed.
If your small business operates as a corporation, the type of corporation will determine when your extension request is due. Corporations that file as “calendar year taxpayers” have until March 15, 2013 to file for an extension. If, on the other hand, your corporation files as a “fiscal year taxpayer,” the date by which to file a tax extension is June 15, 2013 (if your fiscal year ended March 31, 2013).
Most S-corporations will not owe taxes as a company, but if your S-corporation used to be a C-corporation, taxes may be owed. It’s very important for S-corporations to either file on time, or file for an extension by March 15, 2013. If you’re late in filing, the IRS charges interest on the unpaid tax and will also charge penalties per shareholder. Interest at the rate of 5% will be charged per month for each month taxes remain unpaid. If you fail to file a return or a tax extension on time, the IRS can also charge $89 each month for every shareholder in your corporation. These interest rates and penalties will continue to accumulate until your return is filed and all applicable taxes are paid.
Filing for an extension is not, as is commonly believed, a red flag for the IRS. You are not more likely to get audited simply because you filed for an extension. In fact, extensions give you the time you need to ensure that there are no mistakes on your tax return. It’s also been suggested than those who file for extensions are less likely to get audited, since audit quotas may be filled long before extended tax returns are submitted for review.
Whether you file on time or request a tax extension, communication is key. If you think your small business may need to file for an extension, complete form 7004 as soon as possible during tax season. Then get to work completing your taxes – that six month grace period will be up before you know it!
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