Need more time? Here’s how to file a business tax extension
4 min read
May 03, 2021 • Block Advisors
Tax day comes once a year – are you ready? As a small business owner, you likely have more responsibilities than a traditional tax filer, so learning about a business tax extension could be in your best interest. Long story short—a tax extension can help you avoid certain penalties, as described lower in this post.
Whether you need just a few days to wrap up your filing or if you’re far from the finish line, Block Advisors small business certified tax pros are here to help!
Steps to file an extension
If you’re looking to file an extension as soon as possible, the first step is to gather your tax and financial documents, like your P&L statement or income statement.
While it’s a good practice to file your tax return as early as possible, if you can’t complete the return on time, you can file an extension. To do this, you or your chosen tax preparer should complete and submit Form 4868 or Form 7004, depending on the business entity you own.
When to file your business tax extension: These forms must be filed by the due date of the business return.
The following pass-through business structures should file Form 4868:
- Sole proprietorships
- Single-member LLCs filing as a sole proprietorship
The following business structures should file Form 7004:
- Multiple-member LLCs filing as partnerships
- S corporations
If you file an extension, it will give you another six months from the original due date of the return to complete your return (for 2021, it’s five months for returns affected by the later tax deadline). We understand if you just need a little more time—or a lot. No matter your situation, we’re here to help make the process as easy as possible.
Guidance on how to file an extension
As you’re reading through how to file an extension, there are a few rules you need to be mindful of as a business owner.
- Your extension of time to file is not an extension of time to pay your taxes. Generally, you must pay at least 90% of your tax liability in order to avoid the failure-to-pay penalty. Thus, it’s important to take the time to figure out your total taxable earnings for the year. This may require additional completion of small business tax forms.
- States have different rules on filing extensions. Many states require you to file a state extension in addition to a federal extension. You can look up your state here to determine the rules.
If your return was originally due April 15, for example you file as a sole proprietorship, after you file an extension, you have until October 15 to turn in your business’ taxes. Other entities might have different due dates for their business returns, like March 15, which would require them to file by September 15.
Don’t want to tackle filing an extension alone? Get help with your small business taxes from the team at Block Advisors.
Why filing a business tax extension is important
Why should you care about learning how to file an extension for your business’ taxes? If you don’t take action on your tax return on or before tax day, you could be subject to penalties. If you file your federal tax return late and owe tax with the return, two penalties may apply.
- A failure-to-file penalty for late filing.
- A failure-to-pay penalty for paying late.
The failure-to-file penalty is normally 5% of the unpaid taxes for each month or part of a month that a tax return is late. The failure-to-pay penalty is 0.5% per month or part of a month. When the two penalties are combined, the late filing penalty drops to 4.5%, so that the total penalty is 5% for each month or part of a month the return was late.
The late filing penalty maxes out at 25% of the unpaid taxes (about 5½ months); the late payment penalty continues to run until it, too, reaches 25% of the unpaid tax.
More help getting a small business tax extension
While penalties for late filing can get steep, you have options for filing a small business tax extension. Your best bet is to work with a Block Advisors small business certified tax pro, who can get your tax documents organized to help expedite the process of filing so you can make the tax deadline, or help you file an extension. Let us do the heavy lifting so you can get back to what you love.