Business tax extensions: How to file and why they’re important

Tax day comes once a year — are you ready? As a small business owner, you likely have more responsibilities than a traditional tax filer, so learning about a business tax extension could be in your best interest. Long story short — if you choose to file a tax extension for 2023 taxes, it can help you avoid certain penalties, as described lower in this post.

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If you’re not able to visit in-person before the deadline, you can choose to file your small business taxes virtually and save the trip to the office. But if you need a few extra days to wrap up your tax filing, or if you’re far from the finish line, Block Advisors small business certified tax pros are here to help!

Steps to file an extension

If you’re looking to file a business tax extension for the 2023 tax year as soon as possible, the first step is to gather your tax and financial documents, like your profit and loss statement or income statement. (Wondering what goes on an income statement? Check out our post: What does an income statement show?)  

It’s a good practice to file your tax return as early as possible. But if you can’t complete the return by the tax filing deadline, you may wonder how to file a business tax extension. It’s completely normal to feel overwhelmed at this time in the tax season, especially if you are a new business owner. If making the decision to file an extension is making you anxious, don’t worry – Block Advisors tax pros are here to help you through the process.

To file a business tax extension, you or your chosen tax preparer should complete and submit IRS Form 4868 or IRS Form 7004, depending on the type of business entity you own.

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When to file your business tax extension for 2023 taxes: These forms must be filed by the due date of the business return.

The following pass-through business structures should file Form 4868:

  • Sole proprietorships
  • Single-member LLCs filing as a sole proprietorship

The following business structures should file Form 7004: (Note that you can e-file the 7004 form):

  • Corporations
  • Multiple-member LLCs filing as partnerships
  • Partnerships
  • S corporations

If you file an extension for 2023 business taxes, the Internal Revenue Service will give you another six months from the original due date of the return to complete your return. We understand if you just need a little more time — or a lot. No matter your situation, we’re here to help make the process as easy as possible.

Guidance on how to file an extension

As you’re reading through how to file a tax extension for your 2023 taxes, there are a few rules you need to be mindful of as a business owner.

  1. Your extension of time to file is not an extension of time to pay your taxes. Generally, you must pay at least 90% of your tax liability to avoid the failure-to-pay penalty. Thus, it’s important to take the time to figure out your total taxable earnings for the year. This may require additional completion of small business tax forms.
  2. States have different rules on filing extensions. Many states require you to file a state extension in addition to a federal extension. You can look up your state to determine the rules.

If your return was originally due April 18, for example you file as a sole proprietorship, after you file for a 2023 tax deadline extension, you have six months (until October 16) to turn in your business’ taxes. Other entities might have different due dates for their business returns, like March 15, which would require them to file by September 15 for an extension on business taxes from 2022.

Don’t want to tackle filing an extension alone? Get help with your small business taxes from the team at Block Advisors.

Why filing a business tax extension is important

Why should you care about learning how to file an extension for your business’ taxes? If you don’t take action on your tax return on or before tax day, you could be subject to penalties. If you file your federal tax return late and owe tax with the return, two penalties may apply.

  1. A failure-to-file penalty for late filing.
  2. A failure-to-pay penalty for paying late.

The failure-to-file penalty is normally 5% of the unpaid taxes for each month or part of a month that a tax return is late. The failure-to-pay penalty is 0.5% per month or part of a month. When the two penalties are combined, the late filing penalty drops to 4.5%, so that the total penalty is 5% for each month or part of a month the return was late.

The late filing penalty maxes out at 25% of the unpaid taxes (about 5½ months); the late payment penalty continues to run until it, too, reaches 25% of the unpaid tax.

If you’re holding off on filing because you can’t pay your business taxes right now, don’t let that keep you from filing.

More help with getting a small business tax extension

While penalties for late filing can get steep, you have options when deciding to file a small business tax extension for 2023 taxes. Your best bet is to work with a Block Advisors small business certified tax professional. We can get your tax documents organized to help expedite the process of filing so you can make the tax deadline, or help you file by the extended due date in 2023. Let us do the heavy lifting so you can get back to what you love.

Make an appointment.

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