Tax season can be one of the most stressful times for small business owners.

Meeting the IRS's tax filing deadlines can feel overwhelming, especially when juggling day-to-day operations, managing payroll, and keeping up with invoices and expenses.

That's why a tax extension can be a helpful lifeline.

But what exactly does filing a tax extension do for your small business? Is it a red flag to the IRS? Does it buy you more time to pay your taxes? And how do you file for one?

This blog will provide a high-level overview of what you need to know about tax return extensions, including what they are, the pros and cons, and the filing process.

What Is a Tax Extension?

A tax extension gives taxpayers additional time to file their tax returns—it does not, however, give them more time to pay their taxes.

That's a critical distinction.

If you owe taxes, the IRS still expects you to estimate and pay what you owe by the original due date (typically April 15th for most small businesses).

By filing for an extension, you can push the filing deadline back by six months; this gives you more time to organize your financial records, gather documentation, and work with your accountant to ensure everything is correct before you submit your return.

Why Small Businesses File for Extensions

Small business owners might need extra time to file their taxes for a number of reasons.

• Incomplete Records: You may be waiting on key financial documents like 1099s, K-1s, or year-end statements from clients or partners.
• Complex Situations: Businesses with multiple income streams, large deductions, or recent structural changes may need more time to report everything accurately.
• Avoiding Mistakes: Rushing through your return increases the risk of costly errors. An extension gives your accountant and you time to double-check everything.
• Strategic Planning: The extra six months give decision-makers time to make wise decisions that have current year tax implications, such as purchasing new equipment or leveraging credit.
• Planning Around Seasons: For organizations that experience busy seasons, a tax extension allows them to schedule all that is involved with filing their returns for a slower time of the year.

How to File for a Tax Extension

The extension filing process itself is relatively straightforward; the bulk of the work comes from calculating the payment due.

Know What Category Your Business Falls Under

There are two different extension deadlines; the one that applies to you depends on your business classification.

• March 15th: S-Corporations & Partnerships
• The new file date becomes September 15th

• April 15th: Individuals & Corporation
• The new file date becomes October 15th

Submit IRS Form 7004

This form is for businesses filing as partnerships, S-corporations, and C-corporations. Sole proprietors use Form 4868.

Estimate and Pay What You Owe

Even though you're delaying the paperwork, you're still responsible for paying your estimated tax liability by the original deadline.

Pro tip: It is always a good idea to over-estimate your payments when filing an extension.

Note: If you are a taxpayer who pays quarterly estimates, you will want to include your 2025 Q1 estimate payment as part of your 2024 extension payment. For example, if you estimate your 2024 tax bill to be $4,000 and are planning to make a 2025 Q1 estimate payment of $1,000, your extension payment will be for $5,000.

State Taxes May Vary

Some states automatically accept the federal extension, while others require a separate state-level filing. Be sure to check with your accountant or your state's Department of Revenue.

A Note for LLCs

Most small businesses we work with are LLCs, and you may be wondering what business classification they fall under.

The answer: it depends.

An LLC can be taxed as a partnership, S-corporation, C-corporation, or disregarded entity (DRE), which flows directly to the owner's individual tax return. This designation is based on the elections made by the LLC and the number of members it has.

If the LLC is being taxed as a partnership or S-corporation, it has until March 15th to file an extension.

If taxed as a C-corporation or DRE, it must file its extension by April 15th.

What a Tax Extension Does Not Do

A tax extension doesn't buy you extra time to pay your taxes. If you don't pay (or underpay) by the April 15th deadline, you may still face the same consequences you would under normal circumstances.

• Late Payment Penalties
• Interest Charges
• Potential Audits (though filing an extension does not increase your chances of an audit by itself)

So, while an extension can help reduce stress, prevent filing mistakes, and create room for strategic business decisions, paying as accurately as possible by the original deadline is crucial to avoid added costs.

Pros and Cons of Filing a Tax Extension

Pros

• Avoid Late Filing Penalties: These can be hefty—5%-25% per month of the unpaid tax.
• More Time for Accuracy: If your financials aren't complete, an extension gives your accountant more time to review your situation holistically.
• Seasonal Strategy: Gives you ability to do complete taxes during down-time in your business.
  
  

Cons

• Payment Still Due: As previously mentioned, an extension doesn't delay when your payment is due.
• Interest Accrues: Even if you file an extension, interest on unpaid taxes accumulates after the April deadline.
• Might Delay Loans or Grants: Some lenders and grant programs require a completed tax return as part of the application process.
  
  

Tips for a Smooth Extension Filing Process

• Start Early: Even if you need to file an extension, organize your financial records as early as possible and submit them to your accountant. While businesses have to wait on year-end financial statements before beginning, the recommendation is to have all the necessary paperwork to your accountant 4-6 weeks before your original filing deadline.
• Work With a Professional: Speaking of accountants, they can help estimate your tax liability accurately, reducing the chance of penalties and the potential headaches you'd face without one.
• Pay What You Can: While it's recommended to pay the entire amount, even partial payments can help minimize interest and penalties, saving you money in the long run.
  

Work With N.E.W. Accounting 

Filing an extension can be a smart move for small business owners who need more time to prepare their taxes returns.

It’s not a sign of trouble—it’s a tool that, when used responsibly, can help you avoid mistakes, reduce stress, and ultimately save money.

Our team at N.E.W. Accounting is ready to handle all your accounting and bookkeeping needs. We have experience working with small—to medium-sized businesses, and can help to reduce your accounting stress and anxiety any time of year (especially during tax season).

Let's work together!