IRS S Corp Extension: Everything You Need to Know
Whether your company missed its corporate tax return deadline or did not file a specific form on time, here is what you should know. 3 min read
2. S-Corp Tax Liabilities
3. Business Tax Extension
4. How to Apply for a Tax Extension for an S-Corporation
What Is an IRS S-Corp Extension?
Are you seeking an IRS S-Corp extension because your company missed a deadline? Whether your company missed its corporate tax return deadline or did not file a specific form on time, here is what you should know. Maintaining accurate records is imperative to any business — especially when it comes to tax time.
S-Corp Tax Liabilities
When your company becomes an S-Corporation, all profits and losses are reported on the individual tax returns of the corporation's shareholders. Although the majority of these corporations do not pay income tax on most types of earnings, they are still required to file an annual report with the IRS.
Using Form 1120S, the corporation would need to report all associated financial activity. A Schedule K-1 will also need to be included for each shareholder. These shareholders are then generally required to pay corporate income tax, the same as individual taxpayers. This deadline is most often April 15 each year. If these individuals fail to pay on time, they will be subject to penalties and interest charges.
While paying employees, an S-Corporation is required to deduct federal income tax, as well as Medicare and Social Security taxes. If this is the case for your corporation, you will need to file Form 941 each quarter — Form 940 may also be required. The purpose of Form 940 is to determine wage amounts in relation to unemployment taxes. The due date for this form is January 31 each year; however, if you pay all of this tax on time, the IRS will allow you to file as late as February 10.
Business Tax Extension
Whether you are an individual or a business, the IRS will allow you to file a tax extension. This will not provide you with more time to pay your taxes — it will simply provide more time to file an income tax return. Please note that due dates will vary from year-to-year. If the due date is on the weekend or falls on a holiday, your tax return will be due the next business day.
To submit your application:
- File Form 7004 either on or before your original due date. Please note, the IRS will charge a minimum penalty of $195 for each month that the return is late, multiplied by the shareholders. Also, know that if your corporation submits Form 941 after the deadline, a 5-percent fee may be applied to the balance. Similar penalties also apply to Form 940, up to a maximum of 25 percent.
- Use an authorized IRS e-file provider in order to protect sensitive information.
Depending on your business, the IRS will allow a five- or six-month extension. This extension will start from the original due date.
Since this process is automated, you will not need to provide a reason for the late filing. However, if there are any errors, such as the wrong tax ID number, the application will be denied.
How to Apply for a Tax Extension for an S-Corporation
If you would like to apply for an IRS S-Corp extension, here are the steps to follow:
- Step 1: Calculate how much your corporation owes. Remember that as an S-Corp, the corporation will only pay tax on certain gains and passive income. All other income will be distributed among shareholders.
- Step 2: Go to the IRS website to obtain Form 7004.
- Step 3: Complete the form, including the S-Corp's name, address, and the EIN. Skip Part I, filling out Part 2. For the form code in this section, enter 25.
- Step 4: Complete Part III. Since there are some exceptions and special circumstances, it is best to complete this form with your accountant.
- Step 5: This form will ask if your business qualifies under Section 1.6081-5. This related to foreign and domestic corporations that keep books outside of the United States.
- Step 6: Show the total amount of tax due for the year. Although your return will not yet be complete, you will need to crunch some numbers in order to submit a reliable figure. Subtract any credits to show the final balance.
- Step 7: Submit to the IRS.
If you need help filing an IRS S-Corp extension, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.