We all get busy, especially business owners. Between doing all your managerial work, accounting, and every other little chore that is happening, you usually don’t have a moment to spare. Then before you know it, it’s tax time again. It’s a massive stress but it needs to be sorted, or the IRS will be on your back.
Take a break, the magic phrase is tax extension, which means the IRS will let you submit your taxes after the big day. But it is not as straightforward as asking and getting. There are some challenges you must face to get the approval for your extension.
So, how to get this extension?
First of all, the IRS is pretty lenient when it comes to eligibility, with the first requirement being that you request your extension before tax day.
If you fall in the following categories you will need to talk to the IRS.
- Are you living outside the USA?
- Will you be outside the USA when the 6-month extension expires?
- Are you working in a hazardous environment or combat zone?
For people living outside the USA with your main business outside of the USA, you will get an automatic 2 month extension.
For those in a hazardous or a combat zone, the extension will be 180 days.
When should you get one?
Getting your tax right is important. Make sure you have all of your deductions, documentation and other affairs in order. Getting an extension and making sure everything is right is much better than rushing your returns, then taking the risk of making mistakes in your submission to the IRS. So if you feel rushed, or need more time to get your tax right, apply for your extension (or ask your accountant to do it for you).
What is the catch?
The extensions are designed to make sure you do your tax right, with an understanding that businesses needs time to do this. This does not mean that payments do not need to be made on time. Filing for extensions will not extend the payment date for your taxes.
So, what to do if you can’t pay?
Well our good friends at the IRS are willing to work with you again. You can apply to make your tax payments in instalments to take away the effort of paying all in one go.
How much will I pay?
Check out this tax estimation tool: [https://your.yale.edu/work-yale/financials/tax-compliance-and-planning/graduate-professional-students-and-postdoc-fellow-6] This will help you get an idea of what, when and how you need to pay.
Another method is to look at your cash flow from last year and the tax you paid. Following a similar pattern, you can make a good estimate of what the tax will be for this year.
Where do I file the tax extension
The good old 4868 [https://www.irs.gov/forms-pubs/about-form-4868-application-for-automatic-extension-of-time-to-file-us-individual-income-tax-return] is the form you will need. Luckily this form is short and requires you to provide just some personal information, as well as some estimations about your tax.
For business you can submit the 7004 [https://www.irs.gov/forms-pubs/about-form-7004]
If you need to do the job quickly, generally a local accountant or third party sites can get this processed for you. At a low cost, they can submit electronically to further speed up the process. Once submitted, the request generally takes 48 hours to process.
As a final note, tax is just a fact of life. It has to be part of your business, timing and budgets like you would deal with any other customers, expenses and suppliers. Make the right decision about the time and effort here.