April 15th is here — and if you haven’t filed your business taxes yet, you might be freaking out.
But don’t panic just yet! There are key steps you can take to get out of this situation, like:
Applying for a business tax extension so you have more time to file; and
Scheduling a monthly payment plan so you won’t have to pay what you owe all at once.
I’m not a tax accountant, so it’s important for you to get your final advice from a tax professional. However, I sourced a lot of this info from the IRS and other related sites, so this can give you a better idea of what you should do if the clock is running out.
Okay, enough chit-chat — let’s get you on the road to filing for that extension.
Step One: Apply for a Business Tax Extension
Know your due date.
Different business types have different due dates, so it’s important to stay on top of the IRS’s tax calendar so you know when you have to pay. For the purpose of this article, I’ll provide the deadlines for sole proprietorships (self-employed), partnerships, and single-member LLCs.
If you work for yourself and are defined as a sole proprietorship and haven’t registered as any other type of business entity, your deadline is April 15th.
If you’re a single-member LLC, your tax deadline is also April 15th.
If your business is registered as a partnership, your tax deadline can vary, but it’s usually around three months after the end of your tax year. For example, if the end of your tax year is June 30th, you would need to pay by September 15th. Most partnerships use the calendar year for their tax year, meaning the due date is March 15th.
Download and submit these forms.
If you’re a sole proprietorship or a single-member LLC, you’ll want to download Form 4868, fill it out, and mail it to the address specified on page 4 of the form (it varies by state).
If your business is a partnership, you’ll need to download Form 7004 and carefully follow the instructions to make sure you’re filling it out correctly. That’s because this form can be used by multiple entities, so you’ll want to make sure it’s clear you’re filing for an extension as a partnership.
If you don’t have time to mail the forms, the IRS has a lot of partnerships with online tax preparers who can help you file for a FREE extension. Choose one of these partners to fill out either Form 4868 or Form 7004.
Include your estimated payment.
If you’re able to make a payment — and don’t worry if you don’t, I’ll address this in a bit — you may need to include your estimated tax payment along with either Form 7004 or Form 4868.
Here’s how to calculate your estimated payment:
If this isn’t your first year in business, use last year’s taxes as a jumping-off point for how much you should pay. For example, if you paid $10K and there were no major changes with your business’s revenue in 2018, it’s safe to say your estimated tax payment will be around $10K again.
Check out the IRS’s guide on how to estimate your tax payments. It can be a heady read, but it’s a great guide to browse through if you want to make sure you’re doing everything right.
If you’re a sole proprietor or self-employed, this tax calculator can give you a quick idea on how much you may need to pay.
A lot of people stress about making sure their quarterly estimated tax payments are exactly right, but don’t worry — as long as you’re reasonably close, the IRS shouldn’t be knocking down your door. If, however, your estimated tax payments are wildly different (we’re talking several thousand dollars less) from what your actual payment turns out to be when you file, the IRS may impose a penalty for underpaying your income tax.
Make sure everything is correct.
Before you e-file or mail your request for a tax extension, make sure everything is 100% correct. Ask yourself:
- Am I filling out the right form?
- Has my personal or business information recently changed, and if so, is that reflected on the form?
- Did I estimate my quarterly tax payments to the best of my ability?
- If mailing the forms, am I sending them to the right address?
- Am I SURE I have the right form?
Double-checking your application helps minimize the possibility that your request for a tax extension gets rejected.
Now that we’ve outlined the basic steps of filing for a tax extension ASAP, what do you do if you don’t have the money to make an estimated tax payment?
Step Two: Apply for a Payment Plan or Deferred Payment
Here’s the disappointing part about applying for a business tax extension: it doesn’t actually exempt you from paying your tax bill. So if you’re interested in applying for a tax extension to get more time to pay, you might be frustrated by this piece of news.
But all is not lost! Even though the IRS would prefer that you pay your estimated taxes for the year (more on that in a bit), you can apply for a monthly payment plan to help ease the burden of your tax payments. Also, you could apply to temporarily defer your payment.
Note: If at all possible, try to make your entire tax payment. The IRS has the right to impose a late fee, interest, and penalties to payment plans if you miss a payment or haven’t finished paying off what you owe by the next tax season.
Option 1: Apply for a Monthly Installment Plan
The IRS makes it fairly easy to apply for monthly payment installments. Check out their page on how to apply for monthly payments. Note that if you’re applying as a sole proprietor or a self-employed individual, you should apply for this payment plan as an individual.
This may be the best option for you if you’re a new business owner and you don’t have the money to pay your estimated taxes.
Option 2: Request Temporary Deferment
If you’re having financial difficulties and need more time to pay your taxes, the IRS may temporarily delay collecting taxes from you until you’re able to make the payment. Here’s how to request a temporary deferment, but keep in mind that late fees, interest, and penalties may be tacked on to the amount you owe the IRS. But this option is still a good one if you’re struggling to come up with the money.
After the Extension: Work with a Tax Professional
Once your tax extension has been approved, I recommend working with a tax professional who can help prepare you for when it’s time to actually file. Business taxes are no joke, and without the help of a tax professional, you might miss out on some great deductions that could reduce your final tax bill.
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