5 Myths About Extensions for Enterprise Earnings Tax Returns

Companies should file annual federal earnings tax returns a set due date. For partnerships and S firms on a calendar 12 months, the deadline is March 15 (e.g., March 15, 2021, for the 2020 return); for calendar-year C firms and sole proprietors, the deadline is April 15 (e.g., April 15, 2021, for the 2020 return). Companies that may’t meet the deadline could receive a submitting extension. There’s a lot confusion in regards to the guidelines impacting submitting extensions.

Tax Extension Myths

Listed here are 5 myths…and the realities of submitting extensions.

Fantasy: You want motive for requesting a submitting extension.

Actuality: You don’t want a motive or give any motive to the IRS when requesting a submitting extension. Frequent the reason why extensions are used are lacking information wanted for return preparation, busy CPAs or different tax return preparers, or simply procrastination. Once more, regardless of the motive a enterprise could have for wanting an extension, it isn’t related to asking for and acquiring extra time to file.

Fantasy: No motion is required to acquire a submitting extension.

Actuality: Whereas there are some conditions that lead to automated extensions (defined later), typically, to get an extension, it’s worthwhile to request one no later than the unique due date of the return.

  • C firms, S firms, and partnerships use Type 7004 to ask for an extension.
  • Sole proprietors and unbiased contractors, who file Schedule C (or Schedule F for farmers) with their Type 1040 or 1040-SR, use Type 4868 or make an estimated tax cost indicating it’s for functions of an extension.

As talked about, there are a number of conditions the place extra time is robotically granted for submitting a return; no request is required.

  • Sole proprietors who stay overseas have two further months to file and might then request an extra 4 months.
  • As a consequence of COVID-19, the IRS prolonged the due date for submitting 2019 returns for people and calendar-year C firms from April 15, 2020, to July 15, 2020. It’s unlikely there shall be an analogous automated extension for 2020 returns filed within the 2021 submitting season, however something can occur so monitor IRS exercise on this regard.
  • The IRS could grant extra time for victims of federal disasters. For instance, because of the Texas winter storms in February 2021, the IRS introduced an extension to June 15, 2021, for particular person and enterprise tax returns.

Fantasy: A submitting extension offers you extra time to pay your taxes.

Actuality: A submitting extension avoids late-submitting penalties however doesn’t prolong the time for paying taxes. For instance, a sole proprietor, whose 2020 Type 1040 is due on April 15, 2021, could receive an extension to file the return October 15, 2021, and keep away from late submitting penalties. Nonetheless, any taxes unpaid as of April 15 are topic to late cost penalties, which accrue till really paid.

Fantasy: A submitting extension will increase the danger of being audited.

Actuality: There is no such thing as a onerous or anecdotal proof that submitting a return underneath an extension is an audit pink flag. Returns on extension are processed in the identical method as returns filed way of the same old submitting deadline. Whereas the IRS hasn’t stated so, it seems that an extension doesn’t improve—or lower—the possibilities of being audited.

Fantasy: An extension for submitting a federal return robotically extends the time to file a state earnings tax return.

Actuality: In some instances, the federal submitting extension does act to increase the due date for state earnings tax returns. Nonetheless, guidelines range state and separate state-level motion is critical. For instance, New York requires C and S firms to submit state kinds, normally electronically, to acquire a six-month extension; the identical is true for people and partnerships. Test state-level submitting deadlines and the foundations for acquiring extensions the place desired.

Ultimate thought

Consider carefully about whether or not to acquire a submitting extension. If your enterprise is a pass-through entity—an S company, partnership, multi-member restricted legal responsibility firm—an extension for the enterprise return will delay the data wanted the proprietor to finish his or her private return and necessitates requesting one other extension (this one for the proprietor). Additionally, any taxpayer anticipating a refund ought to most likely not delay submitting as a result of it merely extends the interest-free mortgage to the federal government. If you’re uncertain about deadlines, extensions, or different federal and/or state tax issues, attain out to a tax skilled.

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