For business owners scrambling to gather receipts, reconcile expenses, and itemize deductions, tax day can come all too soon. You can take some of the pressure off by filing for a deduction. Here’s how to do it.

Going Long: How to File for a Business Tax Extension

If you’re like most small to medium-sized business owners, you lack the luxury of a dedicated finance person or accountant, let alone a team of gray-suited tax lawyers. That can make tax time pretty overwhelming.

Fortunately, for those of us who lack superhuman number-crunching skills or a handle on the latest deductions, credits, and exemptions, the Internal Revenue Service (IRS) created business tax extensions. An extension lets you pay the bulk of the tax you estimate you owe now and gives you another six months to finalize the paperwork.

Applying for an extension is fairly straightforward. We explain how to get your extension in 5 (relatively) simple steps.

1. Estimate Your Total Tax Owed

When you apply for an extension, the IRS requires you to pay at least 90% of the taxes you owe by your original deadline. While you don’t need to document everything, you need to estimate pretty accurately how much your business owes. Pay too little and you will face penalties later. Pay too much and you could put your business under unnecessary financial strain.

The easiest way to do this is to check your business’s previous tax return and adjust that to account for major shifts in revenue, expenditure, and business structure since the previous year. Many tax accounting packages will let you run your figures given any number of hypotheticals. If in doubt, it’s worth spending the money to consult a tax expert, who can help you with the numbers.

Those payments do need to be made by the original due dates. Normally, these are:

• March 15 for partnerships and limited liability companies (LLCs), and S corporations

• April 15 for sole proprietorships and single-member LLCs

Step 2: Select the Right Application Form

There are separate application forms for corporations, partnerships, trusts, and sole proprietors.

• Form 7004 is for corporations, partnerships, certain trusts, C and S corporations.

• Form 4868 applies to individuals, including sole proprietors. This is an extension of part of your personal income tax return, where you would normally report business expenses under Schedule C. This needs to be filed along with your personal tax return on April 15.

Step 3: Complete the Extension Form

Your extension form is shorter than your tax return itself, but that doesn’t mean you can skimp on accuracy. Start by gathering the information you need. You’ll need to get your hands on:

• Your business’s tax identification number (TIN). You can find it on your previous tax return.

• Your estimated tax liability (see Step 1)

• Statements of any payments you may have already made.

Fill out the correct form. If you’re completing form 7004, you’ll need to provide:

• Your business’s name, registered address, and TIN

• The correct code for the type of tax return your company files

• Whether your business is a foreign registered corporation that already qualifies for an extended deadline of June 15.

• Your expected total tax liability, any payments you’ve already made, any deductions you intend to take, and the outstanding amount you will pay as you file your extension.

Double-check that your form is accurately completed and signed, whether by hand or electronically.

Step 4: Submit Your Form

Submit your completed extension request form on time. You can choose from either electronic filing online or via mail.

• Electronic filing: Use the IRS e-file system or an integrated tax preparation package to submit your form instantly.

• U.S. mail: Check the correct IRS processing center for your location. Make sure your form is postmarked by the correct due date.

You will also need to pay at least 90% of your outstanding tax liability at this time. This can be done via the Electronic Federal Tax Payments System (EFTPS), by an electronic funds transfer through the e-file system, or via a check mailed with your extension form.

Step 5: File Your Taxes Before the Extended Due Date

Now that you’ve secured a tax extension and paid the bulk of your tax liability, it’s up to you to get your tax return completed by the extension date. Be sure to get the help you need to complete your return by this new due date. With the six-month extension, those dates will be:

• September 15: for partnerships, trusts, multiple-member LLCs, and S and C corporations

• October 15: for sole proprietors and single-member LLCs

Failing to file by your extended due date could mean you’ll face specific penalties as well as interest charged on any outstanding payments.

Why Choose a Tax Extension?

In reality, a tax extension is not simply a tool for disorganized business owners. With the constantly shifting dynamics of running a business, an extension can be a tool that allows you to:

• Finalize your financial documents

• Take advantage of all deductions and credits

• Check with tax professionals and CPAs

• Double-check your return for errors or omissions

It’s also commonly thought that filing for an extension might red-flag your return for a tax audit. There is not much evidence for this. Instead, the IRS tends to zero in on discrepancies or anomalies in any tax return, so it’s worth taking the extra time you need to thoroughly and accurately complete the documentation.

Listerhill: More Than A Lender

At Listerhill Credit Union, we’re proud to provide financial products and services for businesses, partnerships, and sole proprietorships that value the personal touch.

We offer our business members:

• A range of tailored business checking accounts

• Our Business Share Savings account

• Business loans

• Our Visa Business Credit Cards

As a member-owned credit union, we do things differently, treating your business as a partner rather than a client. We’re here to help your business succeed.

Contact us today to find out more.

Contact Listerhill Credit Union