Companies should file annual federal revenue tax returns by 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 acquire a submitting extension. There’s a lot confusion in regards to the guidelines impacting submitting extensions.

Tax Extension Myths

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

Fantasy: You want a very good purpose for requesting a submitting extension.

Actuality: You don’t want a purpose or give any purpose to the IRS when requesting a submitting extension. Widespread 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 purpose 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 end in automated extensions (defined later), typically, to get an extension, you might want 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 impartial 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 fee indicating it’s for functions of an extension.

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

  • Sole proprietors who reside overseas have two further months to file and may then request an extra 4 months.
  • Attributable to 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 can be an identical 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 further time for victims of federal disasters. For instance, as a result of 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 provides you extra time to pay your taxes.

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

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

Actuality: There isn’t any onerous or anecdotal proof that submitting a return below an extension is an audit crimson flag. Returns on extension are processed in the identical method as returns filed by way of the standard 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 mechanically extends the time to file a state revenue tax return.

Actuality: In some circumstances, the federal submitting extension does act to increase the due date for state revenue tax returns. Nevertheless, guidelines differ by state and separate state-level motion is important. For instance, New York requires C and S firms to submit state types, often 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.

Remaining thought

Consider carefully about whether or not to acquire a submitting extension. If your small business 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 by 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 not sure about deadlines, extensions, or different federal and/or state tax issues, attain out to a tax skilled.

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