Whether you file as a single-member LLC on Schedule C or as an S Corporation on Form 1120-S, managing your filing deadlines is a key part of staying in good standing with the IRS. This guide explains how to estimate your tax liability if you need more time to file your tax return.
Why estimating your tax matters
A tax extension gives you extra time to submit your paperwork, but it is not an extension of time to pay any taxes you might owe. Generally, the IRS requires you to pay your estimated tax liability by the original filing deadline to avoid potential interest and penalties.
Calculating your estimated tax liability
To determine if you need to send a payment with your extension request, you first need to estimate your total tax for the year.
- Review your income: Start by calculating your total business and personal income.
- Apply deductions and exemptions: Reduce your total income by any deductions or exemptions you anticipate claiming on your final return.
- Account for tax credits: If you plan on using a tax credit, remember to reduce your estimated tax by that amount.
- Calculate the gap: Subtract any taxes already paid, such as through payroll withholdings or quarterly estimated payments, from the total tax you estimate you will owe.
Handling your extension payment
If your calculations show that you still owe tax, you’d want to include a payment when you submit your extension request. While an extension gives you more time to file, any taxes owed are still due by the original filing date.
- For S Corp Members: Your business files Form 1120-S, but your personal taxes are filed on Form 1040. Because S Corps are pass-through entities, business income flows directly to your personal return. If you owe at filing, it is commonly due to one of the following: quarterly estimated payments were not made throughout the year, there was income that was not reflected in the original estimate calculations, or withholding only covered taxes on your salary and did not account for additional pass-through income.
- For LLC Members: Your business activity is reported at the individual level on Schedule C. Your estimated payments should be based on your total Schedule C profits.
How to file your extension
There are three primary ways to request a personal tax extension:
- Electronic payment (automatic extension): The IRS will automatically grant you an extension if you make a full or partial tax payment electronically and designate it as an extension payment. You do not need to file a separate form if you use this method.
- File Form 4868 electronically: E-file Form 4868, the "Application for Automatic Extension of Time To File U.S. Individual Income Tax Return".
- Mail a paper form: You can mail a physical copy of Form 4868 to the IRS. If you are a fiscal year taxpayer, you must file a paper form.
State extension requirements
State requirements vary significantly. In many cases, if you receive a federal extension, your state may grant one automatically. However, some states, such as New York (Form IT-370), may require their own specific forms or payments.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.