What’s an IRS Tax Extension?

Tax extensions for COVID-19 and IRS

Due to the pandemic, the federal government postponed its tax period from April to July last year. These extensions concerned tax returns for 2019, with approved extensions from July to October being pushed back even further.

This year the IRS is taking steps to expedite its tax refund process by starting the process in February. Officials said they needed the extra time, roughly a month after the agency normally started accepting returns, so they could program and test IRS systems to cope with the tax law changes that went into effect on December 27, 2020. Like last year, the tax extension for the 2020 tax year is October 15th.

Key Factor: An IRS tax extension is a helpful tool for taxpayers who need more time, especially during the COVID-19 pandemic.

How do you file an IRS tax extension?

When applying for a tax extension, the process is largely automatic. Small business owners (and regular taxpayers alike) can complete a renewal form either online through a dedicated tax software program or by mail before April 15th and submit it to the IRS. All taxpayers are entitled to such an extension when they need it, with no limitation or restriction. As companies are still working on opening up, the focus should be on reducing tax liability in the short term.

“As long as the information submitted on the application is correct and the form is submitted by the filing deadline, the IRS will grant the extension,” said Mark Jaeger, director of tax development at TaxAct.

Once you’ve been approved for an extension, your tax return filing deadline will be postponed by six months. For 2021, you can get an extension until October 15 to file your 2020 tax return.

Key to take away: Filing an IRS tax return is a straightforward process. You can apply for an extension online, through tax software, or by filling out the appropriate IRS form and mailing it to the IRS.

When should you file a tax extension?

Considerations for filing your tax extension must be made before the April 15th filing deadline. Failure to do so can cause problems with the IRS as you miss the deadline and face a late filing penalty.

According to Puzdrak, the rule of thumb is when to apply for an extension immediately after you have assessed your tax situation.

“After your assessment, you should know if you need more information, if you have all the information and don’t have the funds to pay the tax, or if you are waiting to make a pension,” he said. “If you owe taxes and are making a payment with the renewal, I recommend waiting until April to make the payment.”

There are a handful of more common reasons for filing an extension. These include:

• More information is needed. There is a lot of specific data required to file your taxes that may not be provided in a timely manner. A special case is when one company needs a K-1 form from another but has not yet received it so that they can finish filling out and submitting their return. The former company takes more time as it waits for the latter’s tax information.

• Unexpected delays. Family emergencies, national crises, and other major obstacles can affect a taxpayer’s ability to sit down to gather all relevant information and fill out paperwork. In this case, the taxpayer concerned could simply extend the filing deadline to catch up.
• Pension contributions. When renewed, companies have more time to contribute to certain retirement plans such as an SEP and a 401 (k). One area where this could happen, Puzdrak said, is in the case of a small business that operates seasonally. “If much of their income isn’t coming in until July, August or September, that company can file an extension to extend the filing date and extend the date on which the pension contributions are made,” he said.
• I have no money. Although the tax extension no longer leaves a taxpayer time to pay their taxes, Puzdrak mentioned that corporate and individual taxpayers can file an extension if they do not have the funds to pay the tax due. “It’s not the best strategy, but it happens,” he said. “Taxpayers will be penalized if they fail to make full payment at the time of renewal, but the amount is usually nominal in relation to the amount of tax due.”

Key Factor: Reasons you may need to apply for an extension include the need for more information before filing, external circumstances such as a family emergency preventing you from meeting the deadline, and the need for more time to contribute to the To make retirement provision.

Can the IRS decline an extension?

As long as the correct form is submitted in a timely manner and the information listed on it is correct, there is little reason for the IRS to decline an extension. Most renewal requests are approved by the IRS, but errors are usually the most common reason for not being approved, especially if the form contains an incorrect social security number or the last name does not match the IRS file, “Jaeger said.

When submitting the form, pay special attention to your business or personal information. If addresses have changed or other key identifying information has changed since you last correspondence with the IRS, agents may not be able to attach your request to your tax information. You can notify the IRS of any important changes using a tax form such as: B. IRS Form 8822.

Key to take away: There is little reason for the IRS to deny a tax extension request as long as the information you provide is correct.

Which tax extension form should you use?

For small businesses including partnerships, multi-member LLCs, corporations, S-companies, IRS Form 7004 is the form you need.

Among other things, the form also requires companies to indicate whether they are a foreign company that is not based in the United States. Other important information is whether the company is a corporation or partnership covered by the provisions in Section 1.6081-5 and what the total amount for the tax return for the tax year is.

If you run a sole proprietorship or a sole proprietorship, the form you would fill out for a tax extension is the same as the one that regular taxpayers submit: IRS Form 4868. This is in the eyes of the IRS. There is little difference between Your business and your personal finances.

Key to take away: There are two types of IRS tax extension forms that may apply to your specific situation. Make sure you are using the correct one when requesting an extension.