- Should I file a tax extension?
- What’s the tax extension deadline?
- Will I be penalized if I file a tax extension?
I’m a CPA who specializes in working with small business owners, so I hear these questions a lot. Many of us have been there – tax deadlines are fast approaching and for whatever reason, we’re just not ready to file yet.
Summarizing the Pros & Cons of Filing a Tax Extension
Villanova University highlights key benefits and drawbacks for small businesses who file tax extensions, summarized here. We’ll cover each of these in greater detail below.
Benefits associated with filing a tax extension:
- Allows more time to properly file the return
- The process for filing a tax extension isn’t complicated
- Can potentially help avoid fees for filing taxes late
Filing tax extensions can also have some drawbacks:
- Possible fines for paying taxes that are due late
- Complications when trying to apply for business loans
- Delays in addressing other key business matters
Exploring the Benefits of Tax Extensions
Perhaps one of the largest, most obvious advantages of filing a tax extension is that it gives you more time. Instead of rushing to prepare a tax return in haste only to have the hassle of filing an amended return later on, you now have an opportunity to do things right:
- Properly gather the info needed to correctly file your tax return.
- Check for possible deductions that might have been overlooked.
- Examine your data for accuracy to avoid a future headache.
- Use the extra time to seek professional tax advice.
- All of the above can help you develop a smarter plan going forward.
Filing for a tax extension isn’t very difficult – your tax preparer can do this for you, or you can refer to this IRS page to identify the form that you’ll need to file your tax extension.
Pro tip: Consult the IRS Tax Calendar for Businesses and Self-Employed here – their online calendar shows you key dates, deadlines and actions for each month, and you can even view on your mobile device for added convenience.
A Common Misconception About Filing Tax Extensions
I cannot stress this enough: one of the biggest misconceptions many taxpayers have is that filing a tax extension also offers the ability to pay your taxes at a later date. This is absolutely not true!
A tax extension gives you additional time to file your tax return – but not more time to pay the taxes that you already owe. While it’s a benefit to have more time to file if you need it, the drawback is that an extension doesn’t offer more time to pay. In fact, you could face fines and penalties if you fail to pay the taxes you have due on time.
Moreover, if you need to file for a business loan, most lenders require a current tax return as part of the documentation showing business revenue. If you haven’t filed your return on time, this can delay your loan processing or cause other unwanted complications.
Another detriment to filing tax extensions is that you may find your regular business to-do list expanding rapidly. When you’re focusing on tax matters that should have been addressed already, you don’t have as much time to work on other key business initiatives.
Filing a Tax Extension Can Be a Smart Strategy, But…
Life throws us all curveballs from time to time – that’s why sometimes, filing a tax extension just makes sense.
While there are certainly advantages to filing for an extension, it’s important to remember that procrastination is never a strategy. Like the old adage says, “Failing to plan is planning to fail.”
What if at tax time next year, you weren’t even thinking about taxes because you were so well-prepared? Think it’s an impossibility? Far from it, by implementing a solid plan and keeping excellent records, you can transform your tax experience – and reduce a whole lot of needless stress in the process.
Leverage my expertise working with small business owners to formulate a tax strategy that works for you. I work with you one-on-one to manage every stage of business growth. Whether you are starting a business or ready to move to the next level, contact me today to see how I can help.