Do you need to file an extension for your 1120s S Corporation tax return? Should you file one? Here are the basics about how to file them.
Warning: This tax advice is general in nature. We strongly recommend that you check with a CPA or EA to make sure that your are in compliance according to your specific tax situation.
1120s S Corporation Tax Return Due Date and Late Penalties
For most S Corporation Tax Returns filing under the calendar year, the deadline to file your 1120s tax return falls on March 15th. If the deadline falls on the weekend or a holiday, the deadline is often moved to the next business day.
If you do not use the “calendar tax year”, your 1120s deadline is the 15th day of the third month following the end of the corporation’s tax year, in most cases.
Late-filed 1120s corporation tax returns will likely result in VERY stiff penalties that increase with every month. Failure to file your corporate tax returns seems to be a much bigger deal than failing to file a personal tax return, in many cases. Don’t blow this one off – the consequences are unpleasant to say the least.
If you are late, and especially if you have reasonable cause for being late, it might make sense to seek penalty abatement if you are subject to these high-dollar penalty amounts. There are a few different ways to do this, but there is guarantee that efforts to reduce penalties will work.
If you are seeking penalty abatement, you can hire us to negotiate on your behalf or to prepare and send letters and responses, or you can do it yourself. There is some information on the IRS site on penalty abatement here (opens in a new tab).
Filing an Extension for an S Corporation Tax Return
Many small business owners believe that an extension gives you more time to pay your taxes. This is not true. The extension gives you more time to get your paperwork together to file the tax return. You still have to pay any tax due by the deadline (or at least estimate it within 90% of your tax liability to avoid penalty).
Note that with most S-corps, the filer does not generally pay taxes specifically on the deadline, but instead most often pay their remaining taxes a month later when the personal tax return is filed.
There are also other issues to consider, however, such as state return requirements. Some states require that you pay a franchise tax that is due on the due date of the state return – or even in advance as estimated tax payments. This is regardless to your federal filing obligations.
Why File an 1120s Extension?
If you need more time to get your books together, and you do not owe any tax, it may make sense for you to file an extension.
To file your corporate income taxes, you generally need to categorize your income and expenses for the period into an organized profit and loss (P&L statement). Among other things, a balance sheet with a list of new assets might be needed too.
This can be a lot of work to do by yourself. Many small business hire an accountant to do this bookkeeping for them. Around tax time, the if you or the bookkeeper is backed up with this work and the P&L, etc, is not ready, filing for an extension might be appropriate.
If you have your business paperwork together for your s-corp return it often makes sense to simply file on time and forgo the extension.
Many taxpayers believe that an extension gives them time to pay their taxes at a later date. This is simply not true at all. An extension grants time to “file” your taxes, not to “pay” your taxes. To avoid penalty, taxes must be paid in by the due date.
To make things more interesting, most s corporations do not pay any taxes. Instead, the income of the corporation flows through to the shareholders and they pay taxes on that income on an individual basis.
Really, there is no official benefit to filing an extension if you are actually ready to file. The only common circumstance I could think of where an extension is helpful is if the documents were presented to the tax preparer at the last minute and the tax return can not be prepared on time. Very often, we experience this at our small firm. For example, a client gives us their P&L and Balance sheet 3 days before the tax return due date. Because of commitments to other clients, we usually can’t prepare, present, correct, get approval for, and e-file a corporate tax return. In this case the extension comes in handy.
I have heard that many tax professionals tell their clients to file an extension and then file at the last minute to avoid a random audit – that these audits are selected by the time the extension is due. I haven’t been able to verify whether this is true or just urban legend, however.
If you owe tax and you need extra time, figure and submit your estimated tax liability payment as well as filing the extension form.
Since the extension does not give you time to “pay”, plan on paying the taxes that you expect to owe by your personal tax return due date (in most cases). You and/or your tax professional will have to forecast and estimate your tax liability and send in payment to avoid penalty.
Again, this is a little confusing, but just remember that the s corporation tax return is mostly filed with no tax liability. So file an extension for the 1120s but then include any profits or losses from the s corp with your personal tax return or extension planning.
How to File an Extension for Form 1120s
- You must fill out IRS Form 7004 “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns”.
- This form can be e-filed by a tax professional or filled out and mailed in yourself.
- The income or loss from the 1120s likely “flows through” to your personal taxes. You must estimate if there is any tax due and submit payment by the individual tax return deadline.
- Don’t forget to include extensions and payments to meet your state’s tax return requirements as well.
- Note that there may be other filing (and paying) requirements involved with your S Corporation – we recommend that you consult with a professional.