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All the pieces You Must Know About Tax Extensions

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April 3, 2025
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All the pieces You Must Know About Tax Extensions
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 Everyone knows that dreaded feeling when tax deadlines sneak up quicker than anticipated. In the event you want extra time to file your return, a tax extension can provide you some respiration room. Simply request an extension by filling out IRS Kind 4868 by the April 15 submitting deadline. This may grant you till Oct. 15 to file with out going through penalties. 

However there are some issues to know earlier than you go down that street. Listed below are a few of the prime questions and solutions about enterprise and private tax extensions, from some tax specialists.

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1. What’s the most important false impression about tax extensions?

All of the specialists Success.com spoke with stated the most important false impression is that tax extensions offer you extra time to pay up. In actuality, you simply have extra time to file your tax returns. You continue to must pay your taxes by the unique April 15 deadline.

“A number of penalties could apply to each private and enterprise tax returns in the event you don’t pay what you owe by the unique due date of your return; in the event you don’t file or request an extension by the unique due date of your return and present a stability whenever you ultimately file your return; in the event you do file an extension however don’t file by the prolonged deadline and present a stability whenever you ultimately file your return; or in the event you didn’t pay your required quarterly estimated funds final 12 months,” says Logan Allec, CPA and founder at Alternative Tax Reduction.  These penalties embody: 

●       Failure to pay penalty (in the event you don’t file an extension): The failure-to-pay penalty is charged whenever you don’t pay your taxes on time and is calculated as a share of the unpaid tax quantity. In line with the IRS web site, this penalty “is one-half of 1% for every month, or a part of a month, as much as a most of 25%, for the quantity of tax that is still unpaid from the due date of the return till the tax is paid in full.”

●       Curiosity on unpaid tax (in the event you don’t file an extension): This penalty is charged on any unpaid tax from the due date of the return till the cost date in full. “The rate of interest is set quarterly and is the federal short-term fee plus 3%. Curiosity compounds day by day,” in line with the IRS web site.

●       Failure-to-file penalty: In the event you owe tax and don’t file on time, there’s a penalty (even with extensions). The failure-to-file penalty is usually 5% of the tax owed for every month, or a part of a month that your return is late, as much as a most of 25%. 

●       Underpayment of estimated tax penalty (in the event you don’t make your quarterly estimated tax funds): In the event you fail to pay sufficient taxes by way of withholding or estimated funds, you may incur a penalty. The penalty, in line with Allec, “accrues on any unpaid or underpaid estimated tax cost from the date the cost is due till the sooner of when the estimated tax cost is made or the due date of the return. The underpayment penalty is… equal to the federal short-term fee plus 3%.”

2. How do I do know what to pay for my taxes if I haven’t filed a tax return?

“[Do] your finest to compile the knowledge that you’ve got,” says Andrea Harrington, CPA and companion at Fiondella, Milone & LaSaracina LLP and use that to estimate. It’s also possible to use tax software program or give the knowledge to your tax preparer to calculate an estimated tax.

3. Are the submitting dates for all private and enterprise tax returns the identical?

No. April 15 is the deadline for many sorts of tax returns, and it’s additionally the deadline to file for many sorts of tax extensions. Nevertheless, S company and partnership tax returns are normally due on March 15, and extensions should be filed by then, Allec says. “There’s some confusion about deadlines, as a result of the dates modified just a few years again for S corps and partnerships.”

S firms are companies that move company revenue, losses, deductions and credit on to their shareholders for federal tax functions. Shareholders then report these pass-through earnings and losses on their private tax returns, the place they’re taxed based mostly on their particular person revenue tax charges. Many small companies function as S firms.

4. Do I must file for a state tax extension if I’ve filed for a federal tax extension? 

Typically. In lots of states, resembling California, you don’t need to file a separate state tax extension. Different states, resembling New York, require that you simply do.

In the event you reside and work/have a enterprise in one of many states with no state revenue tax, you do not want to file a state revenue tax return or request an extension. There are some exceptions. In case you have a C-corporation in Florida, which doesn’t have a state revenue tax, it’s essential to pay a 5.5% company revenue tax.

For federal revenue tax functions, a C company is handled as an unbiased taxpaying entity. It operates as a enterprise, generates income or losses, pays taxes and distributes earnings to its shareholders. Most massive companies function as C firms.

To find out your state tax extension guidelines, test your state’s division of income or division of taxation web site for the most recent info, says Allec. It’s also possible to test the extension guidelines in your state’s tax varieties, he says. 

5. When is submitting a private or enterprise tax extension a wise transfer?

Listed below are a few of the important causes:

Ready for Ok-1 funding tax varieties

​Schedule Ok-1 varieties are tax paperwork that report a person companion’s, shareholder’s or beneficiary’s share of revenue, deductions, credit and different objects from sure companies. These varieties are utilized by pass-through entities, which don’t pay revenue tax themselves however move the tax accountability to their members. Move-through entities embody partnerships and S firms. 

Partnerships and S firms can request a six-month extension, shifting the deadline to Sept. 15 for calendar-year entities.

K1 returns are usually extra advanced, taking longer to finish, says Harrington. “We do get a flurry of them in August for our shoppers,” she says.

Monitoring audit outcomes

“In case you are beneath audit, you may wish to wait to see what the outcomes of the audit are,” says Harrington, “in case there are positions that you simply’re at present taking which can be challenged or [reversed].”

For instance, throughout an audit, the IRS may problem your auto use share in the event you can’t substantiate the enterprise use share, she says.

Anticipating modifications to laws

Another excuse to file an extension is to see if there’s any pending laws that would change your submitting place, Harrington says. “The federal authorities made some modifications to analysis and growth capitalization insurance policies quite a lot of years in the past, and there was a whole lot of legislative buzz that triggered folks to increase to see if the flexibility to at present deduct these prices can be reinstated,” she says.

It didn’t occur, but when it had, the individuals who filed tax extensions could have been in a position to reap the benefits of that change. (The American Innovation and R&D Competitiveness Act of 2025 was reintroduced in March of this 12 months however is just not more likely to turn out to be legislation in time to have an effect on this 12 months’s tax return.)

Including cash to enterprise retirement accounts

Another excuse to file an extension is as a result of it might offer you extra time to place cash into your outlined profit plan, says John Adams, CPA and proprietor of Bridgewater Tax and Monetary Consulting.

Money stability plans are a sort of outlined profit plan that permits for a bigger tax deferral in comparison with 401K plans, Adams says. “These plans are utilized by small companies, high-income earners {and professional} companies like docs and legal professionals to defer extra taxes. Annually, an employer provides cash to a plan based mostly on a share of wage and an curiosity credit score.”

“Money stability plans are one sort of retirement plan that means that you can deposit cash up till your submitting extension deadline,” Adams says. “Sure sorts of small enterprise retirement plans supply the identical choice as effectively, together with Simplified Worker Pensions (SEPs), solo 401Ks or SIMPLE-IRAs.”

6. If I reside and work in an space affected by a serious pure catastrophe, will I’ve extra time to file and pay taxes?

Usually, sure. For instance, people, households, and companies in Los Angeles County, California, qualify for tax aid because of the wildfires. The tax submitting deadline for 2024 tax returns for that space has been prolonged to Oct. 15, 2025.

It’s an automated extension, says Allec, which suggests you don’t must file a tax extension to each file and pay your taxes by Oct. 15, 2025. It’s also possible to prolong your IRA and HSA contributions till Oct. 15, 2025, as effectively, Allec says.

7. Ought to I file a tax extension? 

“Individuals ought to simply view it [a tax extension] as a instrument,” says Allec. “Like several instrument, it may be for good…. Extra time to fund your SEP, extra time to assemble information [and] get your books collectively.”

Allec cautions that it may be simple to procrastinate. Oct. 15, the submitting deadline for folks with extensions, can come up quick, and you must be able to file your returns.

Photograph courtesy of fizkes/Shutterstock



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