Is It Fine To File An Extension And What Do I Need To Know About Tax Extensions?

It is that time of the year where we start to get a lot of questions around extensions and there are a lot of mis information out there so we want to try and clear all those up in this article.

Is It Fine To File An Extension?

We hear from so many business owners that they were told not to file an extension because it will increase their risk for an audit. That could not be further from the truth.

• Filing an extension has nothing to do with your risk of an audit.
  
  • In fact sometimes it can avoid an IRS audit because you may have some tax documents that take longer to get delivered (or never get formally delivered) and by extending it buys more time.
  • You also have the ability with an extension to request a transcript to get a listing of every form the IRS received related to your social security number so you can ensure they are all included with your filing.
• Few Key Items:
  • You must file your extension before the deadline.
  • An extension is an extension of time to file your taxes but NOT pay your taxes. Your taxes are still due on the normal due date.
  • If you successfully filed an extension on-time be sure to file your return by the extended deadline.

What Are The Extension Deadlines For Tax Year 2020 And What Form Do I Use?

Note for 2021 tax season (tax year 2020), this has changed slightly from a typical year.

• Business Returns
  • S Corporation: Extension Requests Due By March 15, 2021 – File Using Form 7004
    • Final Due Date (w/ Successful Extension): September 15, 2021
  • Partnership: Extension Requests Due By March 15, 2021 – File Using Form 7004
    • Final Due Date (w/ Successful Extension): September 15, 2021
  • C-Corporation: Extension Requests Due By April 15, 2021 – File Using Form 7004
    
    • Final Due Date (w/ Successful Extension): October 15, 2021
• Personal Returns (Including Schedule C Businesses)
  • New Filing Deadline: May 17th (Typically April 15th)
    • The move from April 15th to May 17th is an automatic 1 month extension for personal returns this year. This also includes a delay of payments.
    • You can also then request the usual extension which would be due by May 17, 2021 and you file using Form 4868.
      • Final Due Date (w/ Successful Extension): October 15, 2021
  • Note: This extension by the IRS does not extend your Q1 estimated tax payment due date, those remain due on April 15. It is also for personal only and does not include C Corporations.

What Happens If I Do Not File An Extension?

Lets talk penalties…

• If you missed an extension deadline or for whatever even chose not to file an extension but still did not file your return you will be facing penalties.
  • S Corporation: $210 Per Month Per Shareholder
  • Partnership: $210 Per Month Per Partner
  • C Corporation: 5% of the unpaid tax for each month, up to 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is $435 or 100% of the unpaid tax, whichever is less. 
  • Personal: 5% of the unpaid tax for each month, up to 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is $435 or 100% of the unpaid tax, whichever is less. 
• Note: Some penalties you can request relief from so if you are facing a large penalty, reach out to us to see what we can do to potentially get that reduced.

Important Items / Recap

Just for good measure, here is a recap and some important things to know.

• Filing an extension does NOT increase your risk for an audit.
• Be sure to file your extension on time by the extension deadline.
• If you successfully filed an extension, be sure you make the final filing before the due date.
• An extension is simply extending your time to FILE, any taxes OWED are still due on the regular due date and you could face interest or penalties if those are paid after the due date. 

Next week we will discuss what you need to know if you cannot afford to pay the tax when due.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.