Should I file an extension?

I have a feeling you found this blog because you’re either short on time and won’t get your taxes filed on time, or you’re my boss editing my blog. However, I’m hoping you’re reading this to stay informed in case you don’t file your taxes on time, so you need a safe alternative to avoid an IRS penalty. If you’re in this situation, you may be wondering, Should I file an extension?

Just to serve as a reminder, business tax filing is due on Marth 15th, or the next closest Monday if it falls on a weekend. The personal tax deadline is on April 15th, or the next closest Monday if it falls on a weekend. If you’re still confused about what date you need to worry about for you and your business entity type, my friend, you’re a bit behind, but don’t fret. Check out our blog regarding “When are my tax deadlines?”.

What does filing an extension provide you

      Let’s get this memorized because we definitely don’t want you part of the bunch that thinks filing an extension means you’ve given yourself more time to pay taxes. Filing an extension does not give you an extended deadline to pay taxes. You still owe any money owed when that tax return is extended. Ultimately, all an extension is is an extension for the time to file a physical return.

Another thing to remember: in certain states, they will require payments. For example, California requires payments from S corporations and partnerships, and those must be made by a specific date. Another example is Texas: they don’t have income taxes, but depending on how much revenue your business brings in and the resulting profit, there could be a corporate tax. There are multiple states out there similar to these two, and an extension would not matter.

Other states, such as Tennessee, don’t accept extensions, and they require personal property tax returns. To have that personal tax return, you must have already completed your corporate tax return, as you will need the depreciation schedule for the personal property. Again, an extension is only for a physically documented return, and it may be accepted federally, but that doesn’t automatically apply to the state tax returns.

So, should you file an extension?

    If your books are not physically ready, say you still have months to reconcile, or you need to add several vehicles bought to your books, then yes. It’s advisable to file an extension. Please keep in mind that you must file an extension before March 15th or April 15th for it to be admissible.

After these dates, the IRS no longer accepts extensions, and you are now considered late on the return. Subsequently, putting you at risk for paying penalties and interest regardless of whether you are paying estimated taxes. These penalties and interests are due to failure to file.

In addition, have a general idea of the estimate you’re going to owe on taxes so that as you submit your extension, you can make the payment. You must also avoid filing an extension if you simply want to get out of filing or paying the taxes until September or October. This will lead you to potentially owe more in taxes. If you have your taxes prepared, but you’re considering an extension because you simply can’t afford your taxes, also avoid doing that.

We recommend that you file your tax return before the due date and opt in to a payment plan with the IRS. Generally speaking, if you have a good and on-time payment history with the IRS, they can waive charging you an interest rate on it. Take a look at the informational page the IRS has provided to get an extension to file on your tax return.

Another consideration is that if your area recently experienced a natural disaster, it’s advisable to submit an extension. Regardless of whether there was a Natural Disaster Declaration by FEMA in your area. In the event that the government, the IRS, creates an error or has a backlog, and you receive a cheerful letter in the mail stating you have failed to file your tax return.

Don’t be surprised; this can happen. Therefore, please submit your extension. The extension is directly tied to you, your business’s EIN (or your Social Security number), so it serves as further security for you and shows you are eligible to file your tax return until the next deadline.

So, yes or no on filing an extension for taxes?

As you read, it’s contingent on the type of entity your business is, the state you live in, and whether there is a Natural Disaster that has prevented you from being ready to file; it also depends on whether you’re still waiting on crucial documentation to file. The key takeaway here is not to file for an extension if you were expecting that to give you more time to pay off any money due.

Also, check with your state for tax filing procedures that are not common or apply to all states. In doing so, you prevent yourself from falling behind on any actionable measures that will potentially incur hefty penalties and interest fees. The goal is to cover all your bases, keep your ducks in a row, and not create consequences for yourself and your business.

Remember, if it’s necessary for you to file an extension, file it before March 15th or April 15th, depending on which applies to you, and pay what you owe.

Be certain your bookkeeping is done throughout the year, and if you have a bookkeeper or accountant, that you provide them with important changes you made. Any new loans you acquired, or vehicles traded, or other asset purchases, or new credit cards opened, or any other change that needs to be reflected on the books, must be given to your bookkeeper or accountant before filing taxes.

This practice helps you file your taxes on time and avoid scrambling at the last minute, when you might need an extension. Here at Waterford Business Solutions, we strive to remind our clients of any changes and documents they must provide for the financial books.

If you found this blog helpful, we have plenty more on our website and videos on our YouTube channel. Please continue reading or watching these videos, as you may never know what more you can learn from us. If you need help filing an extension, please feel free to reach out to our team. We are happy to help!