The Definitive Guide to Tax Filing Extensions for Small Business Owners

DISCLAIMER: This article was written in 2022. For updated information on this subject, please go to Small Business Tax Preparations Tips for Next Year

With the daily demands of owning a small business, it’s not surprising that income tax season can sneak up on even the most organized small business owner. In those cases, it’s not uncommon for business owners to need more time to file their taxes. This can be especially true for new companies filing taxes for the first time.

For a small business filing taxes that may need more time and may be wondering, “Can I file an extension for my business taxes?” Fortunately, the answer is yes. The Internal Revenue Service (IRS) makes it easy for small business owners to ask for an extension to file their income taxes.

Because of the COVID-19 pandemic, the IRS extended the deadline for filing income taxes for 2019 until July 15, 2020. That left many small business owners asking, “Can you file an extension for 2020 business taxes?” In addition, the deadline for 2020 income taxes to be filed in 2021 was extended until May 17, 2021. As a result, many small business owners are now asking, “Will the 2021 tax deadline be extended again?”

For residents of Illinois, Kentucky, and Tennessee – all of which were devastated by tornados during 2021 – the answer is yes. Residents in those states will have until May 16, 2022, to file their income taxes. For the rest of the country, the deadline for filing 2021 taxes was April 18. Keep in mind that the normal filing deadline is April 15 but was moved to April 18 for 2022 because April 15 was Good Friday.

The April 15 filing deadline is also the last day when you can make a contribution to one of the following for the past tax year:

• Traditional IRA
• Roth IRA
• SEP – IRA
• Health Savings Account
• Solo 401(k)

So as far as the question of is there an extension to file business taxes during or for the tax year 2020, the deadlines to file are long gone. There is no further business tax extension deadline for the tax year 2020.

Not only was April 18 the deadline to request a small business tax extension, but estimated first-quarter taxes for 2022 were also due by April 18. Should these estimated tax amounts not be paid or fall significantly short of what is required, the (IRS) can revoke the extension. This could lead to having to pay penalties and interest on top of taxes owed.

But can you get an extension on business taxes going forward? Definitely. In fact, the IRS makes it fairly easy to do so. All small business owners have to do is follow a few simple rules.

How to File for a Tax Extension

Tax extensions for businesses allow small business owners additional time to gather their paperwork and file the proper forms. Tax extensions can be filed free of charge.

Sole Proprietors can request an extension by filing IRS Form 4868. This is the form that’s filed when requesting a personal tax extension. Filing this form correctly and on time can automatically give sole proprietors a six-month extension. LLCs with only one member also file for an extension using Form 4868.

This is because sole proprietors and single-member LLCs don’t file separate business tax returns. Rather, they report business income or losses on Schedule C (Profit and Loss from Business), which is filed along with Form 1040.

Corporate tax extensions for corporations and partnerships can be requested by filing Form 7004. Estimated taxes owed must also be filed with the form. Forms that are listed in Part I of Form 7004 will automatically receive a five-month extension. Forms listed in Part II of Form 7004 will receive a six-month extension. Small business owners don’t even need to explain why additional time is needed to file their taxes.

Form 7004 is not difficult to complete and requires a few basic steps:

1. Business name, tax identification, and address must be filled in at the top of the form.
2. In Part I, choose the correct form code for the type of tax return filed by the business. For example, a corporation – or C Corp – files Form 1120. A partnership, meanwhile, files Form 1065.
3. In Part II, the box on line two must be checked if the request for extension is on the behalf of a foreign corporation that doesn’t have a physical place of business in the United States. The box on line three must be checked if the filing business is the parent company of a group of companies that file a consolidated income tax return. The box on line four in Part II must be checked if a business qualifies for an extended deadline, which would make June 15 the new deadline for filing. The following types of companies qualify for this extended deadline:
   • Partnerships and corporations that maintain their books and records outside of the United States;
   • Foreign corporations that have a physical place of business in the United States, and
   • Domestic corporations whose primary sources of income are within the United States and its territories
4. On Part II, line five, businesses must denote the calendar year or tax year for which an extension is being requested.
5. On Part II, lines six through eight, businesses must enter their tax liability and any payments they’ve already made toward that liability plus any credits they intend to take. Lastly, businesses also indicate the net tax due that they intend to pay with their extension request.

How to Submit Extension Request Forms

There are a number of ways for small business owners to file extension requests. Of course, estimated quarterly taxes are not subject to extensions and many small business owners enjoy the convenience of filing and paying taxes online.

• The Electronic Federal Tax Payments System (EFTPS) allows small business taxpayers to schedule direct debits of tax payments from their business bank account. Businesses must enroll online to use EFTPS or request an enrollment form by calling EFTPS Customer Service at 800-555-4477. The process of initially enrolling in EFTPS takes five to seven business days. As a result, it’s not ideal for a business that needs to make a last-minute tax payment.

• Small businesses can also file electronically (e-file) by using tax software or through a tax professional. Businesses that file Form 7004 electronically may be able to pay their taxes through an electronic funds withdrawal. To do so, they need to provide their business bank account number and the routing number of their bank. In addition, they need to sign Form 8788-A, IRS e-file Electronic Funds Withdrawal Authorization for Form 7007.

• Another option for tax payment is to file a paper Form 7004 to the IRS and send a check for taxes owed along with it. Since different states send their tax forms to different addresses, business owners should consult Instructions for Form 7004 provided by the IRS to see where they should send their forms and checks. It’s advisable to send any forms and checks to the IRS via Certified Mail in order to prove it was by the original filing deadline.

Deadlines for Quarterly Taxes

Business owners who earn more than $1,000 per year are required to pay quarterly estimated income taxes. This includes sole proprietors, independent contractors, and anyone who is self-employed. Anyone who is a full-time employee drawing an annual salary also must pay estimated taxes each quarter if they perform any work on the side in which the earnings total more than $1,000 in a given year.

Form 1040-ES must be submitted with quarterly tax payments. This form is used to estimate the income tax that a business expects to owe at the end of the year.

The deadlines for quarterly tax payments are as follows:

First quarter: April 15

Second quarter: June 15

Third quarter: September 15

Fourth quarter: January 15 of the following year.

For quarterly corporation tax payments, businesses should use Form 1120-W if they expect to owe more than $500 for the year.

State Tax Extensions

Should their state have a state income tax, small business owners in need of an income tax filing extension will also need to file an extension for a state income tax. Many states will grant an automatic extension through a system similar to the manner in which the federal government approves extensions. The process through which small business owners can file for a state tax extension can be found on the individual state websites.

Filing Business Taxes

Once an extension has been granted, the process of filing business taxes remains the same as it would if they were being filed on schedule. Different forms are required depending on the structure of a small business, be it a sole proprietorship, partnership, LLC, or corporation.

1. Revenue and Expenses

The first step in filing business taxes is to organize the revenue and expense records of the business. These records include invoices, receipts, canceled checks, deposit slips, credit card statements, paid bills, and any other documents that help calculate the income and expenses of a company.

Since most small businesses use professional accounting software such as Quicken or QuickBooks, the process of organizing income and expenses is more streamlined than it used to be. Expenses can be inputted as they are incurred, and revenue added as it arrives. This information can then be exported directly into tax preparation software.

2. Business Structure

The IRS requires different forms to be filed with the tax return of a business depending on its business structure.These are outlined below. If any of the filing dates listed fall on a weekend or a holiday, remember that the deadline moves to the next business day.

Sole Proprietorship. For this type of business, business earnings and expenses are reported on Schedule C (Profit and Loss from Business) which is attached to the personal tax return (Form 1040) of the business owner. The normal filing deadline for a sole proprietorship is April 15.

Limited Liability Corporation (LLC). An LLC with one member would pass through its profits and losses on Schedule C and file that on the personal tax return of that member. Should an LLC have two members, it is then classified as a partnership when it comes to federal income tax. An exception would be if an LLC with two members decides it would rather be classified as a corporation. In such a case, filing Form 8832 would allow it to have the same consideration as a corporation for tax purposes. LLCs typically are required to file by April 15.

Corporation. Corporations – or C Corps — are required to file a corporate tax return using Form 1120. Corporations whose fiscal year ends on December 31 are typically required to file by April 15.

S Corporation. This form of business annually gives its shareholders a Schedule K-1, which lists each shareholder’s part of the income and deductions of the business for the year. In doing so, S Corporations are considered extensions of their shareholders for federal income tax purposes. S Corporations also use Form 1120 to file a tax return, which is typically due by March 15.

Partnerships. Like S Corporations, partnerships provide an annual Schedule K-1 to all of their partners that spells out each partner’s share of the income and expenses of the business. The partnership also has to file a Form 1065 with the IRS, which is an informational tax return. Partnerships are normally required to file by March 15.