Payroll Tax Deferral Updates and Implications for Business Owners
Business owners—did you know that deferred payroll taxes may ultimately fall on you for repayment? Ensure you're up-to-date here.
Tax returns can be complicated, long, and overwhelming. This is especially the case if you're a business owner loaded down with a mountain of deadlines and responsibilities.
The IRS gets it, and we do too.
If you can't get all of your forms in by the required filing date, you can file for a business tax extension to buy yourself a little more time.
Does this sound like a step your company might need to take this year? We've got you covered.
Read on to learn all about how business tax extensions work, and how to jumpstart the process today.
First, we need to be clear on one thing: A business tax extension simply gives you more time to complete your tax return.
You still have to pay all of the income taxes and self-employment taxes you owe before the due date. Otherwise, you could risk facing late payment fines from the IRS. To avoid underpayment and late payment penalties, you'll need to pay at least 90% of the amount due.
Not sure how much money your business owes?
Your tax preparer can reference the estimated tax calculation worksheet on IRS Form 1040-ES to give you a rough estimate. Or, you can also check your previous year's return. Either way, make sure to factor into your calculation the self-employment tax due on your business earnings.
Still, don't use this as a way to bide your time and save your dollars. The extension is simply a grace period in which you can assemble needed documents, find receipts, and do any other administrative tasks necessary to file complete and accurate business tax forms. Your business can file for one extension per tax year.
Even if you don't owe any money on your business taxes, you might still need to do a little more work on your return. If that's the case, it's best to go ahead and file for an extension anyway.
The specific IRS form you'll use to file your business tax extension will depend on the kind of business you operate. Let's take a look at two of the most common ones.
Are you at the helm of a sole proprietorship or a single-member limited liability company (SMLLC)? If so, you're used to filing your income taxes on Form 1040, Schedule C, where you include profits from your business into your personal income.
To file a business tax extension, you'll need IRS Form 4868.
One workaround? You don't need to file this form at all if you simply pay part or all of your estimated income taxes online using one of the IRS' electronic payment options. You can also pay over the phone.
Electric payment options include:
Electronic Federal Tax Payment System (EFTPS)
Credit or debit card
When you make your electronic payment, the IRS will automatically process an extension on your time to file. On the other hand, if you intend to pay your estimated taxes in any other way (including by mail), you'll need to include IRS Form 4868 in your request.
Corporations and partnerships will file for a business tax extension using IRS Form 7004. Other entities that will file this way include:
Multiple-member LLCs filing as partnerships
In most cases, the IRS will automatically approve and process your business tax extension as soon as you pay your taxes and submit Form 7004.
Note that the IRS doesn't normally reject requests for business tax extensions, regardless of whether you submit IRS Form 4868 or 7004. When they do, it's often because of an error on your request form, so make sure to double-check all of the data you enter.
Knowing which forms to use isn't helpful unless you know when to submit them. Let's take a look at the deadline to submit your extension application, broken down by business type. The first date explains when your extension application is due, and the latter date reveals the deadline to submit your extended return.
In most cases, the extension is set for a six-month period. Note that the below list is based on partnerships, S corporations and C corporations that have December 31 year-end.
Sole Proprietor/Single-Member LLC: Application due April 15/Return due October 15
Partnership/Multiple-Member LLC: Application due March 15/Return due September 15
S Corporation Business: Application due March 15/Return due September 15
Corporation: Application due April 15/Return due October
You might also need more time to file your state tax return.
In this case, you'll need to file an extension application with your state. You can check with your state tax agency or department of revenue to learn more about this process. This website includes a link to every state's associated taxing agency for ease of reference.
Now that you know a little more about how the business tax extension process works, are you ready to file one for your organization?
Doing so can help you breathe a little easier, take some stress off your shoulders and help make sure all of your information is correct. The best part? Our professional tax preparers can take care of the entire process for you.
Sign up with us today to learn more about our services and how our platform works. Why spend hours filing your taxes when you could do it in a few clicks? Let's connect and take this next step together.
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