The annual tax filing deadline for business owners is rapidly approaching. Partnerships and S-corps have a March 15th deadline, while calendar-year C-corps and sole proprietors are a month later on April 15th – just like personal returns. These dates are obviously crucial in ensuring that our finances are properly reported, but whether a business can actually meet that deadline is another story. The good news is that you can file for an extension.
But there seems to be a lot of confusion around the various rules and regulations — especially if you’ve never filed before. Brilliant Accounting is here to help. We’re busting the most common myths when it comes to filing for a corporate extension, so that you can do so confidently.
The Myth: You must have a reason to file for an extension.
The Truth: The IRS doesn’t need to know why you’re filing for an extension. In many cases, extensions are just the result of missing records, manual errors, or procrastination. While it doesn’t pay to get lazy, you don’t have to let anyone know. As long as you inform the IRS that you are extending, you should be good to go.
The Myth: Extensions are automatic.
The Truth: As nice as this would be, it isn’t true. In order to get an extension, you need to request one no later than the original due date of the return. C corporations, S corporations, and partnerships use Form 7004 to ask for an extension. If you are a sole proprietor or independent contractor who attaches Schedule C to your personal tax returns (or a farmer who uses Schedule F), you can request an extension by filling out Form 4868. Extensions will either be filed with or without payment.
The Myth: Filing an extension makes you more likely to be audited.
The Truth: Despite being long rumored, there is no proof that filing for an extension will increase your chances of being audited. This misconception is often more of a scare tactic to ensure businesses are on time with their taxes and truthful about their finances. Returns on extensions are processed in the same manner as returns filed through the usual filing deadline, so it is unlikely that your late return would trigger red flags for an audit.
The Myth: Filing an extension gives you more time to pay your taxes
The Truth: A filing extension waives the penalties for a late filing but does not extend the time for paying your taxes. Filing an extension applies only to the paperwork you owe, so you still need to pay your taxes on time. Failure to provide the IRS with the money you owe will subject you to late payment penalties, which can quickly add up along with accrued interest until they’re paid.
The Myth: An extension for filing a federal return will immediately extend the time to file a state or local income tax return.
The Truth: This one just needs some clarification. In some cases, this is true — but it does vary by city and state. Separate action is necessary depending on where your business is located, so it’s important to check local and state-level filing deadlines and the rules for obtaining extensions. Failure to follow proper guidelines can leave you vulnerable to penalties.
The Myth: The IRS will notify your city/state of the extension
The Truth: Once again, this isn’t a one-size-fits-all rule. It’s a common assumption that the IRS will let your city or state know about your extension, but that’s not true everywhere. While some states do communicate with the IRS so that a federal filing extension automatically triggers the same for your local government, the only way to be sure is to check directly with your city and state requirements. For example, New York requires specific forms to be filled out by both individuals and partnerships and C and S corporations in order to extend their filing by six months.
While it may be tempting to give yourself the additional time, filing for an extension will impact more than just your company’s tax forms — if you’re a limited liability company or pass-through organization, all stakeholders will be required to file as well, which will inevitably delay their tax refunds. If you want to learn more about the process of filing for an extension this tax season, contact our team at Brilliant Accounting today.