Businesses need to file their annual federal income tax returns by a specific deadline. However, the rules around filing extensions can be confusing, leading to myths that many believe. Here’s the truth about these common misconceptions so you can avoid any unnecessary complications.
For partnerships and S corporations operating on a calendar year, the deadline is March 15, 2024. For calendar-year C corporations and sole proprietors, the deadline is April 15, 2024. If a business cannot meet these deadlines, they can obtain a filing extension.
### Tax Extension Myths
**Myth:** You need a good reason for requesting a filing extension.
**Reality:** The IRS doesn’t require a reason for extending the filing deadline. Whether it’s due to missing records, a busy CPA, or simple procrastination, any reason is valid. The IRS only needs the request, not the explanation.
**Myth:** No action is required to obtain a filing extension.
**Reality:** In most cases, you need to request an extension by the original due date of the return. C corporations, S corporations, and partnerships use Form 7004, while 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 an extension.
Some situations, however, grant automatic extensions. For example, sole proprietors living abroad get an extra two months to file and can request an additional four months. The IRS also grants additional time for victims of federal disasters, like Texas winter storm victims who had until June 15, 2021, to file individual and business tax returns.
**Myth:** A filing extension gives you more time to pay your taxes.
**Reality:** An extension allows more time to file the return, avoiding late filing penalties, but does not extend the payment deadline. For example, if a sole proprietor’s 2020 Form 1040 is due on April 15, 2021, they can get an extension to file by October 15, 2021. However, any taxes unpaid by April 15 are subject to late payment penalties.
**Myth:** A filing extension increases the risk of being audited.
**Reality:** There’s no evidence that filing an extension is an audit trigger. Extended returns are processed the same way as those filed by the regular deadline. It doesn’t seem to impact the likelihood of being audited, either increasing or decreasing the chances.
**Myth:** An extension for filing a federal return automatically extends the time to file a state income tax return.
**Reality:** While sometimes a federal extension extends the state return deadline, this is not always the case. Rules vary by state, and you may need to take separate action to get a state extension. For example, in New York, C and S corporations must submit state forms electronically for a six-month extension. Always check your state’s rules and deadlines for extensions.
### Final thoughts
Decide wisely whether you need a filing extension. If your business is a pass-through entity like an S corporation, partnership, or multi-member LLC, an extension on the business return will delay the information needed for the owner’s personal return, requiring another extension for the personal return. Also, if you’re expecting a refund, it’s better not to delay filing as you’re extending an interest-free loan to the government. If you have any doubts about deadlines, extensions, or other tax matters, consult a tax professional.
