Tax Extension for Business Owners: What You Need to Know
A business tax extension can give business owners valuable time during tax season. Many entrepreneurs assume filing a tax extension means they are behind, but a tax extension for business owners is often a smart financial move. It gives you time to organize records, gather missing documents, and file an accurate return instead of rushing through one of the most important filings of the year.
For many business owners, tax season creates stress fast. Books may still be incomplete. K-1s may not have arrived. You may not even know whether you owe money or expect a refund. When uncertainty sets in, many people panic. But the worst move is not filing at all. A business tax extension can help you stay in control, reduce mistakes, and buy time to make better decisions.
In this guide, we’ll break down how a business tax extension works, what deadlines matter, what penalties you need to watch, and what to do if you cannot afford your tax bill.
What Is a Business Tax Extension?
A business tax extension gives you more time to file your tax return. It does not give you more time to pay. According to the IRS, a tax extension only extends the time to file your return, not the time to pay taxes owed. That distinction matters because many business owners assume an extension pushes everything back. It does not. If you expect to owe tax, the payment is still due by the original deadline even if the return itself is filed later.
The value of an extension is simple. It opens a planning window. Instead of filing a rushed return with incomplete numbers, you gain time to clean up the books, gather final documents, and make informed tax decisions.
Why Many Business Owners File a Tax Extension
Many business owners do not file an extension because they are careless. They file because they are busy. Running a business means handling operations, payroll, customer issues, hiring, growth, and cash flow. Taxes often become urgent only when the deadline is close.
Here are the most common reasons a business tax extension makes sense.
Incomplete Bookkeeping
One of the biggest reasons business owners file extensions is unfinished bookkeeping. Financials are often not fully reconciled by tax deadline season, especially if bookkeeping has been treated as a once-a-year task instead of an ongoing business function. If the books are not complete, the tax return is not ready.
That is also a warning sign. If you only look at your numbers during tax season, you are missing a major tool for running your business well. Good bookkeeping helps with spending decisions, growth planning, and tax strategy all year long.
Waiting for K-1 Forms
Another major reason for filing an extension is waiting on K-1s from partnerships, S corporations, syndications, or investment funds. If income from another entity has not been reported to you yet, your return may be incomplete. In that case, filing early can mean filing inaccurately.
Tax Planning Opportunities
Sometimes an extension is filed because there is still a planning opportunity on the table. That may include retirement contributions, cost segregation studies, research and development credits, or entity planning decisions. Extensions can create room to finalize those items properly before submitting the return.
That said, an extension should not become an excuse to delay until the last possible minute. The better strategy is to file the extension, then set a clear plan to finish the return by midsummer rather than waiting until September or October.
Key Tax Deadlines Business Owners Must Know
Deadlines are what create the need for an extension in the first place. Business owners need to know which filing date applies to them.
March 15 Deadline for Partnerships and S Corporations
Partnership tax returns on Form 1065 and S corporation tax returns on Form 1120-S are generally due on March 15. If you need extra time, the extension must also be filed by that deadline. A timely extension typically moves the filing deadline to September 15.
April 15 Deadline for Personal and C Corporation Returns
Personal tax returns and C corporation tax returns are generally due on April 15. That includes sole proprietors filing Schedule C and landlords reporting rental income on Schedule E as part of the personal return. If you need extra time, the extension must be filed by April 15, which usually extends the filing deadline to October 15. You can always verify current filing deadlines directly through the official IRS tax filing deadlines page.
Extension Deadlines Still Require Action
A business tax extension only works if you file it on time. Missing the original deadline means you may lose the protection the extension provides. That can lead to avoidable penalties and added stress.
What a Tax Extension for Business Owners Does and Does Not Do
This is where many tax problems begin. Business owners hear “extension” and assume that means both the paperwork and the money can wait. That is not how it works.
A Tax Extension Gives You More Time to File
An extension moves the filing deadline, not the payment deadline. For partnerships and S corporations, that usually means moving the filing due date from March 15 to September 15. For personal returns, that usually means moving the filing due date from April 15 to October 15.
A Tax Extension Does Not Extend Your Payment Deadline
If you owe tax, the IRS still expects payment by the original due date. If you wait to pay until the extended filing deadline, you may still face penalties and interest on the unpaid amount.
That is why estimating your payment matters, even when the final return is not ready.
Common Myths About Tax Extensions
Many business owners resist filing an extension because of myths that simply are not true.
Does Filing an Extension Increase Audit Risk?
No. Filing an extension does not automatically increase audit risk. In fact, filing a rushed and inaccurate return may create more problems than filing an extension and sending in a complete and correct return later. The transcript also notes that taxpayers can use extra time to request and review IRS transcripts to confirm what forms have been reported under their Social Security number, which can help reduce reporting mistakes.
Do Only Disorganized Taxpayers File Extensions?
No. Many experienced business owners and high-income taxpayers file extensions every year. They do it to ensure they have all necessary records and enough time for proper planning. Filing an extension is not a sign of laziness. Often, it is a sign that someone wants to do things carefully and correctly.
How to File a Business Tax Extension
Filing a business tax extension is usually straightforward, but it needs to be done before the deadline.
- Identify your entity type. Partnerships, S corporations, sole proprietors, and C corporations do not all follow the same due dates.
- File the extension by the original due date. For business entities, this generally happens in March. For personal returns, it generally happens in April.
- Estimate what you owe. Even if your books are not final, make a reasonable estimate of your tax liability.
- Submit a payment if needed. Paying with the extension can reduce penalties and interest.
- Create a plan to finish the return early. Do not wait until the final extended deadline if you can avoid it.
Penalties for Not Filing a Tax Return
The IRS does not ignore unfiled returns, and the cost of doing nothing can add up quickly.
Failure to File Penalties
For business tax returns such as partnerships and S corporations, the failure-to-file penalty can be almost $250 per owner, per month. That means a company with four owners could face around $1,000 per month in penalties.
For personal returns and C corporations, the penalty can be 5% of any unpaid tax each month, up to a total of 25%.
Failure to Pay Penalties and Interest
These failure-to-file penalties do not even include failure-to-pay penalties and interest. If you neither file nor pay, the balance can grow fast. That is why filing the return, even if you cannot fully pay the bill, is usually much better than avoiding the filing altogether.
How to Estimate Your Tax Payment When Filing an Extension
Since a business tax extension does not delay payment, you should make a reasonable estimate of what you owe. You do not need to be exact. If you knew the exact number, you would likely already be ready to file. But a good faith estimate can reduce interest and failure-to-pay penalties.
The transcript emphasizes that even a partial payment helps. Paying something is better than paying nothing if you expect a balance due.
Tax payments can often be made through direct debit when electronically filing, through an IRS online account, via IRS Direct Pay, or by using debit or credit card options, though card payments may involve processing fees.
What to Do If You Cannot Pay Your Tax Bill
Owing the IRS is stressful, but it is more common than many business owners admit. The key is not to panic and not to disappear. The IRS would generally rather work with you than chase you, especially if you have filed your return and opened communication.
Short-Term IRS Payment Plans
One option is a short-term payment plan, which may give you up to 180 days to pay. This can help business owners who have temporary cash flow issues but know they can catch up soon.
Long-Term Installment Agreements
Another option is a longer installment agreement that spreads the balance across monthly payments. While penalties and interest may still apply, this type of agreement can prevent enforced collection actions and give structure to the repayment process.
Financial Hardship Options
In more severe cases, some taxpayers may qualify for hardship-related relief or currently not collectible status. These options are harder to obtain, but they exist for people dealing with major financial hardship.
The big message is this. Always file. Then work the payment problem. Do not make the payment problem worse by adding failure-to-file penalties on top of it.
Mistakes Business Owners Should Avoid During Tax Season
There are a few costly mistakes that show up over and over again during tax season.
- Do not ignore IRS notices.
- Do not assume the problem will go away on its own.
- Do not skip filing just because you cannot pay.
- Do not drain retirement accounts without understanding the tax and penalty consequences.
- Do not throw the balance on a high-interest credit card without comparing that cost to IRS payment plan options.
Key Takeaways About Business Tax Extensions
A business tax extension is not a red flag. It is not a sign that you have failed. In many cases, it is a smart move that gives you room to file a more accurate return and make better tax decisions.
Here are the main points to remember:
A business tax extension gives you more time to file, not more time to pay.
Many business owners file extensions because they are waiting on documents, finishing their books, or working through tax planning opportunities.
Filing an extension does not increase audit risk. Filing a rushed and inaccurate return is often the bigger risk.
If you owe money, file your return anyway and explore IRS payment options rather than ignoring the problem.
Handled the right way, an extension can take a stressful tax season moment and turn it into a strategic reset for your business.
Need Help With Your Tax Strategy?
If this tax season exposed gaps in your bookkeeping, planning, or cash flow, now is the time to fix them. A proactive tax plan can help you reduce surprises, lower your bill, and stay in control before deadlines hit.
Visit TaxElm to see how we help business owners build smarter tax strategies year-round https://taxelm.com
FAQ: Business Tax Extensions
What is a business tax extension?
A business tax extension gives business owners additional time to file their tax return. It does not give more time to pay taxes owed. If you expect to owe taxes, the payment is still due by the original tax deadline even if you file an extension.
How long does a business tax extension give you?
The amount of time depends on the type of return.
• Partnerships and S corporations typically receive an extension until September 15.
• Personal tax returns, including many business owners filing Schedule C income, typically extend to October 15.
Does filing a tax extension increase your chances of an IRS audit?
No. Filing a tax extension does not increase your audit risk. In many cases, filing an extension can reduce risk because it allows you to file a more accurate return rather than rushing and making mistakes.
Do you still have to pay taxes if you file an extension?
Yes. A business tax extension only extends the filing deadline. Taxes owed are still due by the original deadline. If you expect to owe taxes, you should estimate the amount and make a payment when filing the extension to reduce penalties and interest.
What happens if a business owner does not file taxes or an extension?
If a business owner fails to file a tax return or extension, the IRS may apply failure-to-file penalties. For partnerships and S corporations, this penalty can be roughly $250 per owner per month. For individuals, the penalty may reach 5% of unpaid taxes per month, up to 25%.
How do business owners file a tax extension?
Most business tax extensions are filed electronically through tax software or by a CPA. Business entities generally file an extension using IRS Form 7004 for business tax extensions, which allows partnerships and corporations to request additional filing time., while individuals filing personal extensions typically use Form 4868.
What if I cannot afford to pay my tax bill?
If you cannot afford to pay your tax bill, the IRS offers several options. These may include short-term payment plans, long-term installment agreements, or hardship programs. The most important step is filing your tax return and communicating with the IRS rather than ignoring the issue.
Should business owners file a tax extension every year?
Many business owners file extensions regularly. Filing an extension can provide extra time to gather financial records, receive K-1 forms, and complete tax planning strategies. It can be a normal part of responsible tax management.
Transcript:
Introduction: Tax Season Stress and Why Extensions Matter
[00:00:00] Every year around tax time, I hear the same thing from business owners. They say, “I’m behind,” or “I don’t have all my numbers ready,” or “I’m pretty sure that I can’t even afford my tax bill.” When that moment sinks in, that’s where panic sets in.
But here’s the truth that most people don’t realize. Filing a tax extension can actually be a power move, and owing the IRS doesn’t mean that you’re out of options.
Today, I’m gonna break down when extensions actually help you. I’m gonna break down what actually happens when you can’t pay your tax bill. And I’m gonna talk about how smart business owners turn tax season stress into a strategic reset.
So let’s dive into this concept.
The Emotional Reality of Tax Time
The first thing to help break this up is I just wanna talk about the emotional reality of tax time.
You know what I always say when it comes to tax season and stress is that business owners, they’re not lazy. They’re just busy. And that is what causes tax season stress. There’s a lot of reasons why we feel unprepared when it comes to tax season. That could be missing information. That could be K-1s from other businesses that you’re a part of that you’re waiting on.
That could mean messy books, and this is a common thing for business owners, messy books that are not ready in time. But I always say most of the time it’s not just business owners being absolutely careless. It’s just that they’re busy. As a business owner, as an entrepreneur, we are constantly doing and moving, being pulled in multiple different directions.
And tax season can add some stress to that. There can be points in time where you don’t even know what your tax bill will be. You might owe hundreds of thousands of dollars in tax, or you might be getting a refund and you don’t know because you haven’t been on top of these things.
And the biggest mistake that I see business owners make in this season of stress is letting fear dictate their decisions. I see people say, “Ah, I just don’t know how much I’m gonna owe. I’m scared about the bill, so I’m just not gonna file. I’m just gonna hope that that goes away.” Or, “I just don’t have anything ready, so I’m just gonna file garbage information,” or “I’m just not gonna file anything because I don’t have it ready.”
And I will tell you one thing. One thing that tax does not do is it doesn’t just disappear. One thing that the IRS does is the IRS just doesn’t disappear. And so it’s very important to not let this fear and this stress dictate our actions. And we’re gonna be talking about that today and what some of those opportunities are.
The Main Tax Deadlines You Need to Know
So when we talk about extensions, let’s talk about tax deadlines, because the deadlines are what drive this need for an extension.
There are two main deadlines that we talk about. The first one is generally gonna be March 15th, and the second one is gonna be April 15th.
So if you are organized as a partnership or an S corporation, those tax returns are due March 15th. Now, this year it’s March 16th because the 15th lands on the weekend. But traditionally it’s gonna be March 15th. So partnership Form 1065 and S corporations 1120-S, your tax return for last year is due on March 15th.
Now, if you need to file an extension, you need to file that extension by March 15th.
Personal tax returns and C corporation tax returns, these are due on April 15th. Now, your personal tax return would include Schedule C if you have some side gig type income or sole proprietorship type income. If you have rental properties on a Schedule E, that would all be part of your personal tax return, and those tax returns are due on April 15th, or you at least have to file an extension by April 15th.
So again, partnerships and S corporations, those are due March 15th. Personal tax returns and C corporation tax returns, those are due on April 15th.
What a Tax Extension Is, and What It Is Not
So let’s talk about what an extension or a tax extension actually is and what it isn’t.
A tax extension gives you more time to file your tax return. It does not give you more time to pay. And that’s where there’s a lot of confusion. A lot of people think, “Well, I can’t afford my tax bill, so I’m gonna file an extension and then I don’t need to pay that tax bill until October 15th.” That’s not true.
A tax extension is an extension of time to file your tax return, not an extension of time to pay for any taxes owed. The taxes you owe are still due on that April 15th deadline. We’ll talk about estimating that, but the taxes would still be due on April 15th. If we have additional taxes due when we file later in the year, there might be some penalties or interest on that.
Now, what a tax extension does is it moves your filing deadline to September 15th for partnerships and S corporations, or October 15th for your personal tax returns. So all a tax extension is saying is, “Hey, I’m not ready. I can’t file my tax return by this March 15th through this April 15th deadline. So I’m gonna file a successful tax extension by that deadline.” And that extends my time to file to September 15th for partnerships and S corporations, and October 15th for personal tax returns.
Basically, what I always call a tax extension is this. It opens up your planning window, and it opens up your opportunity for filing.
Tax Extension Myths That Need to Go Away
Tax extension is not a red flag, and I wanna make that very clear. We’re gonna talk about some myths that I hear all so often whenever I talk about tax extension with someone.
I hear these myths and we’re gonna talk about them and debunk them so that you can feel comfortable during this time.
The first one I hear often is tax extensions increase audit risk. That is simply not true, and we’re gonna talk about it. Tax extensions actually, in a way, can decrease audit risk and can decrease that audit risk significantly. So in no way do tax extensions increase audit risk. If somebody you know, an accountant, somebody’s telling you that, they are completely wrong.
And the second myth that I hear oftentimes is an extension is sort of like a bad thing. Only people who are behind or lazy or make mistakes, only those types of people file extensions. Again, simply not true.
Many high-income earners, myself included as a business owner, we file an extension every single year, and there’s reasons for that. And we’re gonna talk about some of those reasons. So tax extensions are not an audit risk. Tax extensions are not an indication that this person’s lazy or this person’s not prepared. That’s simply not the case.
The Most Common Reasons People File Extensions
So let’s talk about some of the most common reasons on why people file tax extensions.
Books Not Completed
Number one is books not completed. And this is especially important for business owners. So many business owners do not take their bookkeeping or their financial statements seriously until it comes to tax time, because they know that in order to file a tax return, you need to have completed books. So it’s required at that point in time, but they haven’t been putting the focus on it throughout the year because they’re busy.
We’re entrepreneurs. We’re busy. We’re being pulled in a thousand different directions. There’s different things that we’re doing. And so hopefully this is a wake-up call. If that is your situation where books are not completed, hopefully this is a wake-up call to say, okay, let’s get those completed, but let’s get on an action plan to fix that this year.
Because financial statements and bookkeeping should not just be a tax season thing. That’s not the only reason we do bookkeeping. It should be something that helps you throughout the year. It helps you with your business growth, understanding spending, all those different things.
So if you are only completing bookkeeping for tax purposes, make that change now because not only is it gonna make tax season less stressful, but second, it’s gonna help you better run your business.
Waiting on K-1s or Investment Reports
The second most common reason that we see a need for people to file a tax extension is that they’re waiting on K-1s or investment reports from other people.
So let’s say you’re a business owner and maybe you’re a partner in a company or two companies where you are actively involved in that business. You might be waiting on K-1s from that because they haven’t filed, they filed an extension. So you don’t have a K-1, and in order to file your personal tax return, you need that K-1 because that K-1 is gonna report your share of income on your personal tax return.
So you might be waiting on K-1s from that. Or maybe you’re an investor in a real estate syndication fund or something like that, where you’re waiting on a K-1 from that, where you’re not actively involved in that business, but you’re a passive investor waiting on a K-1 from that.
That is the second most common reason that we see people needing to file extensions.
Planning Opportunities
The third one is a planning opportunity, and these are for people that are considering, maybe they’re considering retirement contributions, maybe they’re considering a cost segregation study. If they purchased some real estate or want to accelerate some depreciation, maybe they’re waiting on results from a cost segregation study that they can use for that last year’s tax return.
Maybe they’re waiting on some data for some R&D tax credits, or maybe they’re doing some entity changes. All of these might be planning opportunities that they’re waiting on, some different opportunities to come up, and they’re gonna say, okay, let’s extend this a little bit until I have time to organize all this, until I have time to make retirement contributions from a profit-sharing perspective, whatever it might be.
It can definitely be a planning opportunity as well.
Why Extensions Can Be a Strategic Tool
You know, tax extensions allow intentional tax planning. It’s that feeling of not being rushed. So tax extensions can definitely be a powerful tool that allow you to get things in order.
Now, I wanna make that very clear though. When we talk about tax extensions, that doesn’t mean that, okay, I’m gonna file a tax extension and then when September comes up or October comes up, then I’m gonna start scrambling to get all these things done. No, no, no, no, no, no.
What I wanna be very clear with business owners, the best way to file tax extensions is to say March 15th comes up, or April 15th comes up, says, I’m not quite ready yet. I’m gonna file that tax extension, but let’s make a plan to be ready by midsummer. Maybe it’s June, maybe it’s July. Let’s make a plan to get that filing done so that we’re not rushing at the final extension deadline.
Because if you file an extension and you get to September 15th or October 15th for your personal tax, there is no further extension. So the last thing we wanna do is just say, okay, I’m just gonna push this can down the road and then you’re gonna have more stress at that time.
If that’s your strategy with a tax extension, don’t do it. My strategy is to say tax extensions open up opportunities for you to correctly file things, but don’t just push that can down the road because you’re just extending that time of stress.
How Extensions Can Actually Reduce Audit Risk
Now when we talk about tax extensions, again, I wanna make this very clear. It is not an audit risk, and oftentimes it’s quite the opposite.
You know what we talk about a lot to those small business owners is every individual has the opportunity to request from the IRS something called a tax transcript. And a tax transcript is something that the IRS sends you that says, here is all the information that we got from you.
So if somebody filed a W-2 under your personal tax return, that shows up on there. If someone filed a 1099 under your personal tax return, that shows up on there. Any form that somebody filed with your Social Security number on there, it will show up on your tax transcript.
And so oftentimes people can extend their tax return, request their transcript, and have a clear idea of what the IRS is showing for documents received under their Social Security number. This can oftentimes decrease the risk of an audit.
And I always say when it comes to tax extensions that filing a rushed, inaccurate tax return is way worse than filing an extension, taking your time, and filing a correct tax return. So let’s make that very clear.
The Real Cost of Not Filing
Now when we talk about tax extensions, they can be very responsible. What’s not responsible is people that just say, “I’m not gonna file. I can’t afford this tax bill, so I’m just gonna not worry about it and just hope it goes away,” or “I don’t have anything ready, so I’m just not gonna file an extension. I’m not gonna file a tax return, and I’m just gonna worry about this later down the road when someone comes knocking and I wanna figure that out.”
So let’s talk about some problems with not filing a tax extension or a tax return. There’s a lot of penalties and this can really be burdensome. This can really, really add up.
So for business tax returns, the penalty for not filing a tax extension or eventually a tax return is almost $250 per owner per month. So let’s say you have a four-owner company. If you don’t file an extension and you have four owners, that’s a thousand dollars per month in penalties. That can add up really quickly. Imagine you have a 10-person company, whatever it might be. Even if you just have a solo company, that can add up quickly.
And that’s why it’s so important to not just say, “Hey, I just hope this goes away.” Let’s not have that attitude. Let’s just say, let’s file this extension. Let’s do things the right way.
Now, the penalty if you have a C corporation or your personal tax return is 5% of any unpaid tax each month, up to a total of 25% of unpaid tax. So if you don’t file an extension on your personal tax return, you’re gonna have interest, you’re gonna have to still pay that tax bill, and then you’re gonna have this penalty above it.
These are what we call failure-to-file penalties. They don’t include failure-to-pay penalties. They don’t include failure-to-pay interest and all those different things. And that’s why it’s so important to, at the very least, if you can’t afford your tax bill, that’s one thing, but then you do not want to add on top of that by also saying, “I can’t afford it, so I’m just not gonna file.”
What we always tell people, regardless of whether you can afford your tax bill or not, file your tax return, and then work on the payment afterwards because now you’re only working with a failure-to-pay penalty instead of a failure-to-pay penalty and a failure-to-file penalty.
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All right, back to the part that most people get wrong.
The Part Most People Miss: Paying With the Extension
The part that everyone misses when we talk about tax extensions is making a payment with that tax extension.
Now, when we talk about payments, you should still estimate and make a payment when you file an extension. Remember, a tax extension is an extension of time to file, not pay, for those taxes. So the taxes are still due on the original due date.
So whenever you’re filing an extension, you should be making an estimate if you think you’re gonna have tax owed. Obviously, we don’t know the real numbers because that’s why we’re filing an extension. We wanna make an estimate of what our numbers are gonna be and make an estimated payment with that tax extension because that payment is owed on the original due date.
You know, when we pay something, even if it’s just a little bit, it’s not the full amount, what that helps is it helps reduce failure-to-pay penalties. It helps reduce interest, and this can be super powerful. These can add up and it’s very important.
Now, you’re not required to be exact. Reasonable estimates matter. So again, if we knew the exact numbers of what our tax bill’s gonna be, we would just probably file our tax returns. So we never are gonna know exactly what it is.
Make a reasonable effort to say, okay, based on my income, kind of what I’m expecting, here’s where I expect my tax bill to be. Here’s the payments I already made, and let’s make an estimated tax payment against that bill.
The Easiest Ways to Pay the IRS
Now oftentimes when people are saying, “Hey, I owe taxes. How do I even pay for my tax bill?” the easiest way to pay for your tax bill is just have it withdrawn when you’re e-filing your tax return.
So when you go to file your tax return, your accountant, or if you’re using some type of software out there, you can enter in your direct deposit information and the government’s just gonna pull that amount due from that. That’s the easiest way to file, whether you’re doing a tax return or an extension. You can make a payment with those filings.
But if you didn’t do that, or if you wanna do a different route, you can pay online using your IRS account, or there’s a Direct Pay option directly on the IRS website. You can pay via debit card, credit card. You can pay via a direct debit from your bank account.
Now, if you’re using a debit card or credit card, just know that there’s gonna be some fees for processing on that that are gonna be added on top of that. But so many different options, whether it’s the direct debit from your checking account, debit card, credit card, but so many options.
Just make sure that you’re making that estimate. The worst thing that you can do is avoid filing a tax return altogether, as this is just gonna make penalties and interest that much worse.
If You Cannot Afford Your Tax Bill
I wanna make this so clear because I see so many businesses that just get into a rut. They’re stressed, they’re scared, and they let that drive their decision making and they say, “I’m just gonna forget about it and hope this just goes away.”
The worst thing that you can do is avoid filing a tax return altogether if you can’t afford the tax bill. File a tax return and then worry about that afterwards. If you do not file a tax return, you have not only failure-to-file penalties, but now you also have failure-to-pay penalties. You have interest. If we can at least reduce some of those penalties, the better you’re gonna be.
So what if you can’t afford your tax bill? Let’s talk about that.
And I’ll be honest with you, this is more common than people admit, especially for business owners because they might be used to working a W-2 job where taxes are already taken out and now they become a business owner and they kind of forget about that idea of, “Hey, I gotta put some money aside to this.”
And so not being able to afford your tax bill is more common than a lot of people want to admit. And the IRS would rather work with you than chase you.
So just know that the IRS understands that this is common. The IRS understands that this happens. They wanna work with you. They’re not gonna come attack you. They’re not gonna go run you down unless you ignore them, unless you blatantly don’t file things.
So ignoring your tax bill is the worst move that you can make. Create communication with the IRS. Communication means leverage, gives you options. Always, always file your tax return.
IRS Payment Plan Options
Now, when we talk about options, if you can’t afford your tax bill, option number one is you just set up a short-term payment plan with the IRS. You can push this out to up to 180 days. The setup is usually pretty easy and it’s a really good opportunity or a really good option for those that have cash flow timing issues to say, okay, I can’t afford this today, but let’s extend this. Let’s make a short-term payment plan up to 180 days and make up that payment over that time.
Option number two is a long-term installment agreement, and this is where you’re making monthly payments over a longer period of time. It prevents enforced collections. So this again is where that communication comes in. If you just don’t communicate with the IRS, all of a sudden you might have a collector showing up at your door. Signing up for one of these installment agreements or a short-term payment plan stops that from happening.
The IRS says, okay, we’re good. We’re set up on a plan. We have a structure. We can make an opportunity to start paying this off. Now with a long-term installment plan, penalties still accrue, but it’s slowly and you’re actually making progress towards that bill.
And then option number three, and this one isn’t as common, but you could be in a not collectible status. And this is for those that are maybe in a severe financial hardship, going through a process where there’s no funds at all and no opportunity to get funds. There’s different filing options for that.
Again, these are harder to come by, these are harder to get passed with the IRS, but if you are really just in a really hard point, there might be some opportunities there.
What Not to Do If You Owe the IRS
The biggest thing is we wanna talk about is what not to do in this scenario. If you can’t afford your tax bill, here’s what not to do.
Don’t ignore notices. If you’re getting notices from the IRS, just respond to them. The IRS is normal people like me and you. They just want communication.
I always talk about don’t not file. Don’t just hope that this is gonna go away, because I will tell you, and you can read stories online over and over and over, IRS does not just go away. Solve the problem, create a line of communication, and start to work on solving it.
The other don’t that we wanna talk about is don’t drain retirement accounts without planning. I see so many people that say, okay, I owe tax, I’m just gonna drain this retirement account, I’m gonna pay it. Well, then they get to next tax season and guess what? There’s a big bill on that retirement account and there’s a penalty on that retirement account.
So just make smart decisions. Don’t put it all on high-interest credit cards without modeling it out. Run some numbers to see if it makes sense. Does an installment plan make sense or does it make sense to pay it off with a credit card? Run some of those numbers to make sense of that.
And don’t assume that you are in trouble just because you owe money. Again, this is something that happens all the time. You’re not in trouble if you owe money. Just open that line of communication. Talk to the IRS and look to resolve it.
Make Tax Planning a Priority Going Forward
Finally, when it comes to this piece, make tax planning a priority to lower that tax bill.
If you’re sitting in tax season right now, you’re facing a tax bill that’s a little bit higher than you wanted, make this your cue that, hey, there are a lot of things that you probably could have done last year to lower that tax bill.
Do it now. You may have missed many opportunities last year that you can now take advantage of this year. So we’re gonna have to bite the bullet. We’re gonna have to pay that tax bill from last year. But don’t make that same mistake again.
Make it a focus of yours to say, “Hey, I’m not gonna go down that route again this year. I’m gonna focus on finding opportunities that are available to me.”
Final Recap on Deadlines, Extensions, and Payment Options
So let’s kind of wrap up this whole concept.
The first thing I wanna talk about again is deadlines. March 15th is when partnerships and S corporations are due, or you have to file an extension by that time. Now, this year it’s March 16th because the 15th lands on a weekend.
So March 15th, partnerships Form 1065 and S corporations Form 1120-S, those are due on March 16th this year, or you have to file an extension. And if you successfully filed an extension by that deadline, you extend your time to file that S corp tax return to September 15th.
Now, if you are a C corporation or your personal tax return, those are due on April 15th. So C corporations and personal tax returns are due on April 15th. If you need an extension, you need to file an extension by April 15th and that moves your time to file that tax return to October 15th.
Let’s talk about tax extensions. Tax extensions, again, they’re due by March 15th or April 15th depending on partnership, S corporation, or a personal tax return. A tax extension is an extension of time to file, not an extension of time to pay your taxes. So an extension of time to file your tax returns, not an extension to pay your taxes.
Tax extensions are okay, and oftentimes they’re recommended. I have filed a tax extension for many, many, many years, and a lot of the people around me are filing tax extensions as well, because we wanna make sure that we have all the documents that we need. We wanna make sure that we have it done correctly.
But here’s the thing. If you’re filing a tax extension, don’t just assume, okay, I don’t need to worry about anything until September, October. Take the time, get your ducks in a row, get things organized, and make it a point to get that tax return filed sometime this summer.
And if you can’t afford your tax bill, don’t panic. File your tax return. The biggest mistake you can make is not file your tax return. So at a bare minimum, file your tax return and then just work with the IRS on a payment plan.
Key Takeaway
Here’s the key takeaway. A tax extension isn’t a failure. Owing the IRS isn’t the end of the world. But ignoring that whole situation absolutely is.
If you use extension strategically and understand your payment options, you stay in control of your tax bill.
And if you found what we talked about today helpful, don’t forget to subscribe. Hit that like button and share it with a business owner who’s sick of paying too much in tax.
And if you want help from our entire team of tax professionals implementing strategies like this along with so many other tax strategies to help lower that tax bill, visit us at taxelm.com. That’s T-A-X-E-L-M dot com, or click the link in the description for a free discovery call. We are helping small business owners like you legally lower your tax bill every single day.
Thanks, and I’ll see you on the next one.
Podcast Outro
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Remember, the insight shared here is for educational purposes and not specific tax or legal advice. Always consult with a qualified professional for your unique situation.
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