Everyone knows that dreaded feeling when tax deadlines sneak up quicker than anticipated. For those who want extra time to file your return, a tax extension may give you some respiratory room. Simply request an extension by filling out IRS Type 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 provide you with 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 might 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 stability whenever you finally file your return; when you do file an extension however don’t file by the prolonged deadline and present a stability whenever 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 Alternative Tax Aid. These penalties embody:
● Failure to pay penalty (when you don’t file an extension): The failure-to-pay penalty is charged whenever you don’t pay your taxes on time and is calculated as a proportion of the unpaid tax quantity. In line with the IRS web site, 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 continues to be unpaid from the due date of the return till the tax is paid in full.”
● Curiosity 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 fee date in full. “The rate of interest is set quarterly and is the federal short-term price plus 3%. Curiosity compounds each day,” in line with the IRS web site.
● Failure-to-file penalty: For those who owe tax and don’t file on time, there’s a penalty (even with extensions). The failure-to-file penalty is mostly 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): For those who fail to pay sufficient taxes via withholding or estimated funds, you may incur a penalty. The penalty, in line with Allec, “accrues on any unpaid or underpaid estimated tax fee from the date the fee is due till the sooner of when the estimated tax fee 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 associate 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 forms of tax returns, and it’s additionally the deadline to file for many forms 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 a number of years again for S corps and partnerships.”
S companies are companies that move 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 based mostly on their particular person earnings tax charges. Many small companies function as S companies.
4. Do I have to file for a state tax extension if I’ve filed for a federal tax extension?
Generally. In lots of states, comparable to California, you don’t need to file a separate state tax extension. Different states, comparable to New York, require that you just do.
For those who stay and work/have a enterprise in one of many states with no state earnings tax, you do not 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 should pay a 5.5% company earnings tax.
For federal earnings tax functions, a C company is handled as an unbiased taxpaying entity. It operates as a enterprise, generates earnings or losses, pays taxes and distributes earnings to its shareholders. Most massive companies function as C companies.
To find out your state tax extension guidelines, test your state’s division of income or division of taxation web site for the newest data, says Allec. It’s also possible to test the extension guidelines in your state’s tax varieties, he says.
5. When is submitting a private or enterprise tax extension a sensible transfer?
Listed below are among the major causes:
Ready for Okay-1 funding tax varieties
Schedule Okay-1 varieties are tax paperwork that report a person associate’s, shareholder’s or beneficiary’s share of earnings, deductions, credit and different objects from sure companies. These varieties are utilized by pass-through entities, which don’t pay earnings tax themselves however move the tax accountability to their members. Cross-through entities embody partnerships and S companies.
Partnerships and S companies can request a six-month extension, transferring the deadline to Sept. 15 for calendar-year entities.
K1 returns are typically extra complicated, taking longer to finish, says Harrington. “We do get a flurry of them in August for our shoppers,” she says.
Monitoring audit outcomes
“In case you are below audit, you may wish to wait to see what the outcomes of the audit are,” says Harrington, “in case there are positions that you just’re at the moment taking which are challenged or [reversed].”
For instance, throughout an audit, the IRS may problem your auto use proportion when you can’t substantiate the enterprise use proportion, she says.
Anticipating adjustments 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 adjustments to analysis and growth capitalization insurance policies a lot of years in the past, and there was quite a lot of legislative buzz that induced individuals to increase to see if the flexibility to at the moment deduct these prices can be reinstated,” she says.
It didn’t occur, but when it had, the individuals who filed tax extensions might have been in a position to benefit from 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 turn out to be 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 provide you with extra time to place cash into your outlined profit plan, says John Adams, CPA and proprietor of Bridgewater Tax and Monetary Consulting.
Money stability 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} companies like docs and attorneys to defer extra taxes. Every year, an employer provides cash to a plan based mostly on a proportion of wage and an curiosity credit score.”
“Money stability plans are one kind of retirement plan that permits you to deposit cash up till your submitting extension deadline,” Adams says. “Sure forms of small enterprise retirement plans supply the identical possibility as effectively, together with Simplified Worker Pensions (SEPs), solo 401Ks or SIMPLE-IRAs.”
6. If I stay 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 reduction as a result of 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 lengthen your IRA and HSA contributions till Oct. 15, 2025, as effectively, Allec says.
7. Ought to I file a tax extension?
“Individuals ought to simply view it [a tax extension] as a device,” says Allec. “Like all device, it may be for good…. Extra time to fund your SEP, extra time to collect data [and] get your books collectively.”
Allec cautions that it may be straightforward to procrastinate. Oct. 15, the submitting deadline for individuals with extensions, can come up quick, and you’ll want to be able to file your returns.
Picture courtesy of fizkes/Shutterstock
