Everyone knows that dreaded feeling when tax deadlines sneak up sooner than anticipated. In the event you want extra time to file your return, a tax extension may give you some respiration room. Simply request an extension by filling out IRS Kind 4868 by the April 15 submitting deadline. This may 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 a few of the high questions and solutions about enterprise and private tax extensions, from some tax consultants.
1. What’s the largest false impression about tax extensions?
All of the consultants 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.
“Several penalties may apply to both personal and business tax returns if you don’t pay what you owe by the original due date of your return; if you don’t file or request an extension by the original due date of your return and show a balance when you eventually file your return; if you do file an extension but don’t file by the extended deadline and show a balance when you eventually file your return; or if you didn’t pay your required quarterly estimated payments last year,” says Logan Allec, CPA and founder at Alternative Tax Reduction. These penalties embrace:
● Failure to pay penalty (in case you don’t file an extension): The failure-to-pay penalty is charged once you don’t pay your taxes on time and is calculated as a share of the unpaid tax quantity. In line with the IRS web site, this penalty “is one-half of 1% for each month, or part of a month, up to a maximum of 25%, for the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.”
● Curiosity on unpaid tax (in case 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 interest rate is determined quarterly and is the federal short-term rate plus 3%. Interest compounds daily,” in response to the IRS web site.
● 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 (in case you don’t make your quarterly estimated tax funds): In the event you fail to pay sufficient taxes by way of withholding or estimated funds, you would possibly incur a penalty. The penalty, in response to Allec, “accrues on any unpaid or underpaid estimated tax payment from the date the payment is due until the earlier of when the estimated tax payment is made or the due date of the return. The underpayment penalty is… equal to the federal short-term rate plus 3%.”
2. How do I do know what to pay for my taxes if I haven’t filed a tax return?
“[Do] your best to compile the information that you have,” 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 data 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. Nonetheless, 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, because the dates changed a few years back for S corps and partnerships.”
S firms are companies that move company revenue, 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 revenue 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?
Generally. In lots of states, reminiscent of California, you don’t must file a separate state tax extension. Different states, reminiscent of New York, require that you simply do.
In the event you stay and work/have a enterprise in one of many states with no state revenue tax, you do not want to file a state revenue 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 revenue tax, you will need to pay a 5.5% company revenue tax.
For federal revenue 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 large companies function as C firms.
To find out your state tax extension guidelines, examine your state’s division of income or division of taxation web site for the newest info, says Allec. It’s also possible to examine the extension guidelines in your state’s tax kinds, he says.
5. When is submitting a private or enterprise tax extension a wise transfer?
Listed below are a few of the important causes:
Ready for Okay-1 funding tax kinds
Schedule Okay-1 kinds are tax paperwork that report a person associate’s, shareholder’s or beneficiary’s share of revenue, deductions, credit and different objects from sure companies. These kinds are utilized by pass-through entities, which don’t pay revenue tax themselves however move the tax accountability to their members. Cross-through entities embrace partnerships and S firms.
Partnerships and S firms can request a six-month extension, shifting 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 clients,” she says.
Monitoring audit outcomes
“If you are under audit, you might want to wait to see what the results of the audit are,” says Harrington, “in case there are positions that you’re currently taking that are challenged or [reversed].”
For instance, throughout an audit, the IRS would possibly problem your auto use share in case you can’t substantiate the enterprise use share, she says.
Anticipating modifications to laws
Another excuse to file an extension is to see if there’s any pending laws that would change your submitting place, Harrington says. “The federal government made some changes to research and development capitalization policies a number of years ago, and there was a lot of legislative buzz that caused people to extend to see if the ability to currently deduct these costs would 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 yr however just isn’t prone to turn out to be legislation in time to have an effect on this yr’s tax return.)
Including cash to enterprise retirement accounts
Another excuse 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 used by small businesses, high-income earners and professional firms like doctors and lawyers to defer more taxes. Each year, an employer adds money to a plan based on a percentage of salary and an interest credit.”
“Cash balance plans are one type of retirement plan that allows you to deposit money up until your filing extension deadline,” Adams says. “Certain types of small business retirement plans offer the same option as well, including Simplified Employee Pensions (SEPs), solo 401Ks or SIMPLE-IRAs.”
6. If I stay and work in an space affected by a serious pure catastrophe, will I’ve extra time to file and pay taxes?
Usually, sure. For instance, people, households, and companies in Los Angeles County, California, qualify for tax reduction 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 automated extension, says Allec, which suggests 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?
“People should just view it [a tax extension] as a tool,” says Allec. “Like any tool, it can be for good…. More time to fund your SEP, more time to gather records [and] get your books together.”
Allec cautions that it may be straightforward to procrastinate. Oct. 15, the submitting deadline for individuals with extensions, can come up quick, and it’s good to be able to file your returns.
Picture courtesy of fizkes/Shutterstock
Success Tales
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