Businesses must file annual federal income tax returns by a set due date. However, the rules impacting filing extensions are often confusing, which is responsible for business tax extension myths that people believe. Find out what is true so you won’t be held responsible by following myths that have no merit.
For partnerships and S corporations on a calendar year, the deadline is March 15, 2024; for calendar-year C corporations and sole proprietors, the deadline is April 15, 2024. Businesses that can’t meet the deadline may obtain a filing extension.
Here are five myths…and the realities of filing extensions.
Myth: You need a good reason for requesting a filing extension.
Reality: You don’t need to give a reason to the IRS when requesting a filing extension. Common reasons why extensions are used are missing records needed for return preparation, busy CPAs or other tax return preparers, or just procrastination. Again, whatever the reason a business may have for wanting an extension, it isn’t relevant to asking for and obtaining more time to file.
Myth: No action is required to obtain a filing extension.
Reality: While there are some situations that result in automatic extensions (explained later), in most cases, to get an extension, you need to request one no later than the original due date of the return.
C corporations, S corporations, and partnerships use Form 7004 to ask for an extension.Sole proprietors and independent contractors, who file Schedule C (or Schedule F for farmers) with their Form 1040 or 1040-SR, use Form 4868 or make an estimated tax payment indicating it’s for purposes of an extension.
As mentioned, there are several situations where more time is automatically granted for filing a return; no request is needed.
Sole proprietors who live abroad have two extra months to file and can then request an additional four months.The IRS may grant additional filing time for victims of federal disasters. For example, due to the Texas winter storms in February 2021, the IRS announced an extension to June 15, 2021, for individual and business tax returns.
Myth: A filing extension gives you more time to pay your taxes.
Reality: A filing extension avoids late filing penalties but does not extend the time for paying taxes. For example, a sole proprietor whose 2020 Form 1040 is due on April 15, 2021, may obtain an extension to file the return by October 15, 2021, and avoid late filing penalties. However, any taxes unpaid as of April 15 are subject to late payment penalties, which accrue until actually paid.
Myth: A filing extension increases the risk of being audited.
Reality: There is no hard or anecdotal evidence that filing a return under an extension is an audit red flag. Returns on extension are processed in the same manner as returns filed through the usual filing deadline. While the IRS hasn’t said so, it appears that an extension does not increase—or decrease—the chances of being audited.
Myth: An extension for filing a federal return automatically extends the time to file a state income tax return.
Reality: In some cases, the federal filing extension does act to extend the due date for state income tax returns. However, rules vary by state and separate state-level action is necessary. For example, New York requires C and S corporations to submit state forms, usually electronically, to obtain a six-month extension; the same is true for individuals and partnerships. Check state-level filing deadlines and the rules for obtaining extensions where desired.
Final thoughts
Think carefully about whether to obtain a filing extension. If your business is a pass-through entity—an S corporation, partnership, multi-member limited liability company—an extension for the business return will delay the information needed by the owner to complete his or her personal return and necessitates requesting another extension (this one for the owner). Also, any taxpayer expecting a refund should probably not delay filing because it merely extends the interest-free loan to the government. If you are unsure about deadlines, extensions, or other federal and/or state tax matters, reach out to a tax professional.
Image: Depositphotos
>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : SmallBizTrends – https://smallbiztrends.com/2024/03/tax-extension-myths-2.html
