Tax deadlines are just around the corner but there is no need to fret. The IRS makes it free and easy for companies to file an extension to better prepare their returns. Keep in mind that estimated payments are still due on Tax Day.
Here are some calendar filer dates for filing a tax extension:
S-Corp / LLC / Partnerships
Tax Filing Deadline: March 15
Extension to File: September 15
C-Corp / Sole Proprietorship
Tax Filing Deadline: April 15 (April 18 for tax year 2021)
Extension to File: Oct. 15 (Oct. 17 for tax year 2021)
There are several reasons to consider an extension.
Filing is effortless: The IRS extension form 7004 extends the filing date up to six months and can be filed electronically. It simply asks to subtract the total tax year payments from the total estimate of tax liability for the same filing year. The estimated taxes owed can be paid online.
More time to check that the paperwork is correct: The IRS generally grants extension requests, giving taxpayers six additional months to file their paperwork. The extra time provides the flexibility to finalize the details of the return. It also grants accountants the opportunity to carefully review forms and find further deductibles. Double-checking the paperwork can prevent mistakes and the need to file amended tax forms later.
Avoid paying late fees: The penalty fee from the IRS for filing taxes late is usually 5% of the unpaid taxes for each month that a return is late, for up to 25%. There is also a penalty of .05% for those who don’t pay their taxes on time for each unpaid month after the due date, up to 25% as well.
An added bonus of filing for a tax extension is that businesses can use Ardius to see if they are qualified for the R&D tax credit their company deserves. This will also help businesses find out if they qualify for the payroll-tax offset. Those that wish to use R&D credits to offset payroll taxes will need to file the credits on a timely return; the option to use credits for payroll is not allowed on an amended filing. The offset can begin the quarter after the tax return is filed. For example, businesses that request an extension as a C corporation that filed an extension but are planning to use R&D credit to offset payroll taxes would benefit by filing by Sept. 30 (the third quarter), so they can use the credits on Oct. 1 (the fourth quarter), instead of waiting until Oct. 15, then having to wait until January to use the credits.
To file an extension, fill out IRS Form 7004 and send it by mail or visit IRS Free File to file online. The extension must be filed by Tax Day, with your estimated payment. Keep in mind some states require that filing a state extension as well, so be sure to check the extension rules for your state as well. Contact your state tax office to learn about its extension requirements.