Maximize is back with another crash-course in need-to-know tax info for entrepreneurs!
Filing an Extension 101
Certain business tax returns including S-Corporations and Partnerships are due March 15th. Did you procrastinate and won’t be ready to file in time?
Good news: The IRS grants you an automatic extension to file your taxes.
Why you may need to file an extension
- Incomplete tax documentation
If you’re worried about incomplete documentation or mistakes made on your return, take advantage of your extension to ensure your return is accurate. For example, if you’ve lost a form 1099. You are better off waiting for that form 1099 instead of skipping it and filing. This will prevent you from filing an incorrect return thus exposing you to potential interest, penalties and taxes years down the line. You don’t want that smoke.
- Unexpected life events
We all know this one… Doesn’t matter if you intend to do something on time, sometimes life gets in the way. The IRS does not need an explanation to come down on you with hefty late-filing penalties. Go easy on yourself, there is no need to risk missing an IRS deadline. File an extension to give yourself 6 extra months to file. Panic attack averted.
- IRA conversions
Extra time to file might be just what you need to obtain more tax savings. The IRS allows you to “recharacterize” your Roth IRA contribution into a traditional IRA. This helps you receive a better tax treatment since traditional IRA contributions are deductible, depending on your income level. Take the extra time to make the money-saving moves for your business.
- SEP IRA Contributions
If you are a business owner then you may have a SEP IRA account of your own. The deadline to make a 2021 contribution to a SEP IRA is when you file your 2021 tax return. So that may mean April 15th of this year or October 15th…if you file an extension. So imagine you are eligible to make a $10,000 contribution until October 15th to fund your SEP IRA in order to get the tax write-off for contributing to your SEP IRA. What a clever way to not only reduce your tax bill but to also invest in your future. Your future self will be proud.
How do I file an extension?
For certain businesses such as corporations and partnerships, you complete form 7004.
Individual taxpayers complete form 4868. 48 The IRS offers Free File to certain individuals to electronically request an extension. Or just ask your tax professional to file the proper extension form for you.
You must file your extension request no later than the regular due date of your return.
- Once you have filed form 7004, you have until September 15 to file the return.
- Once you have filed form 4868, you have until October 15 to file a return.
IMPORTANT: Filing an extension IS NOT a payment extension. It is an extension of time, not payment. An extension of time to file your return does not grant you any extension of time to pay your taxes. You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties.
What happens if I can’t pay my estimated tax bill?
Don’t worry… I’m talking about this in next week’s Maximize. Keep your eyes on your inbox on March 15 for all the answers!
Still have questions? I’ll be answering your extension questions all week on Instagram. Send me a DM that you are part of my Maximize community and I’ll make sure your question gets answered. ❤️
Disclaimer: This blog is for educational and conversational purposes only. Blog posts and social content from Obih Collective Inc. are not legal tax advice. Please consult a tax professional before making any tax decisions based on this information.