Tax season can be a hectic time for business owners, especially if you're structured as an S Corp. Sometimes, despite your best efforts, you might find that you need more time to file your business taxes accurately.
Let’s take a moment to review what you need to know about tax extensions for S Corp business owners, including what they are, how to request one, and important considerations to keep in mind.
What Is a Tax Extension?
A tax extension, in the context of S Corp business owners, is a formal request made to the IRS (Internal Revenue Service) to extend the deadline for filing your Business Tax Return. It provides additional time beyond the original filing due date to complete and submit your tax documents.
There are various reasons why S Corporation owners might require a tax extension. These reasons can include a tax planning strategy, complex financial situations, unexpected delays in gathering necessary information, or other unforeseen circumstances.
A tax extension can provide the extra time needed to ensure accurate and complete tax filings.
Tax Extension Benefits for S Corp Owners
Strategic Planning: One of the main reasons extensions are filed is to provide additional time in funding a retirement plan, as well as identifying potential deductions or credits that may be beneficial.
Accurate Reporting: A tax extension allows you more time to gather and review your financial records, reducing the risk of errors in your tax retur`n.
Minimized Penalties: Filing an extension can act as a safety net in case additional time is needed down the road. Why wait until the last minute when you can file for an extension now and rest assured you have 6 more months free of any late filing penalties?
Reduced Stress: The added time can alleviate the stress associated with rushing to meet the original tax filing deadline.
Common Misconceptions About Tax Extensions
Extensions Trigger an Audit: Contrary to popular belief, filing for an extension does not increase your chances of being audited by the IRS. It is a routine (and totally normal!) option available to all taxpayers.
No Need to Pay Taxes with an Extension: While you can request an extension to file your return, this is not an extension to pay any taxes owed. Failing to pay on time, at the original deadline, may result in penalties and interest.
Extensions Are Difficult to Obtain: Extensions are typically granted automatically for most businesses, including S Corps, as long as you follow the proper procedures. In fact, Collective handles the filing for you!
Extensions Are for the Disorganized: Extensions are not a sign of disorganization, but rather a prudent approach to ensure accuracy and compliance in your tax filings.
How Tax Extensions Affect Individual Tax Filings
As an S Corp owner, your business income often flows through to your personal tax return. Therefore, it's essential to consider how obtaining a tax extension for your business taxes might affect your individual tax filings.
Coordination with Personal Taxes: Ensure that the timelines for your personal tax return align with the extension granted for your business taxes to avoid any conflicts. Also, it’s important to remember that your Business Tax Return must be filed before your Individual Tax Return.
Estimated Payments: If you owe personal income taxes as a result of your S Corp income, remember that those estimated payments are typically due by the original tax filing deadline. Failing to make these payments on time can lead to penalties and interest on your personal taxes.
What to expect when your return has an extension
If your return is put on extension, Collective will support you in alignment with your tax filing services. We'll file a request for an extension for your Business Tax Return, and once it's accepted, you'll receive an email with the subject "Acceptance notification for your 2023 electronically filed extension". This can take anywhere from a couple of hours to a week, depending on your state.
For more information about what support you'll receive during the extension window, look for an email with the subject line "[Important] We’re filing a Business Tax Return extension on your behalf" in your inbox. Please see an example email below:
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.