Filing for a Tax Extension for Your Small Business

For the small business owner, there are countless things to concern yourself with on a daily basis. From inventory to insurance, cash flow to bookkeeping, employees to subcontractors, no wonder tax returns get pushed to the last minute.

If a business tax extension is needed, how is one requested? How much time does the extension grant?

A business tax filing extension follows a rule similar to that of an individual tax return - an extension to file does not equal an extension to pay. The IRS still expects a business to make any payment of tax by the legal due date of the return; any shortfall in tax will still be subject to potential penalty and or interest, even if a valid extension to file is in place.

For business returns, an extension to file is accomplished by the use of Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax Returns.

Form 7004 accommodates almost all business tax forms. The form provides for an automatic 5-month extension for Form 1065 (partnerships) as well as Form 1041 (estates and trusts). A 6-month extension is automatically granted for other business taxes, such as Form 706 (estate tax), and all corporate returns on the Form 1120 series.

Unless the business has employees, most self-employed taxpayers who have not incorporated are considered sole proprietors. As such, they show their business earnings and deductions on their personal 1040. Business expenses are shown on Schedule C or Schedule E, and the net business income is then transferred back to the 1040.

If your business income or loss is reflected on your 1040, then you need only file Form 4868 in order to be granted the six-month extension to file. Remember to make an estimation of the amount you owe and send it in with the extension.

Here are the common due dates for most business tax returns:

- Sole proprietors: April 15 of the next calendar year
- Corporations: 15th day of the 3rd month after the end of your tax year
- Partnerships: 15th day of the 4th month after the end of your tax year

For any business that carries employees, in addition to the business tax return, a separate return must be filed to report and pay employee federal tax withholdings. This is done on a quarterly basis using Form 941, following the schedule below:

1. For the months of January, February and March, the due date is April 30.

2. For the months of April, May and June, the due date is July 31.

3. For the months of July, August and September, the due date is Oct. 31.

4. For the months of October, November and December, the due date is Jan. 31 of the following year.

There is no established form to request an extension for the filing of Form 941. However, if all your required deposits have been timely made for the quarter you are filing, the IRS allows a 10-day grace for the 941 to be filed.

All of the above forms can be filed electronically through the IRS web site, www.irs.gov.