We all know that dreaded feeling when tax deadlines sneak up faster than expected. If you need more time to file your return, a tax extension can give you some breathing room. Just request an extension by filling out IRS Form 4868 by the April 15 filing deadline. This will grant you until Oct. 15 to file without facing penalties.
But there are some things to know before you go down that road. Here are some of the top questions and answers about business and personal tax extensions, from some tax experts.
1. What’s the biggest misconception about tax extensions?
All the experts Success.com spoke with said the biggest misconception is that tax extensions give you more time to pay up. In reality, you just have more time to file your tax returns. You still need to pay your taxes by the original April 15 deadline.
“Several penalties may apply to both personal and business tax returns if you don’t pay what you owe by the original due date of your return; if you don’t file or request an extension by the original due date of your return and show a balance when you eventually file your return; if you do file an extension but don’t file by the extended deadline and show a balance when you eventually file your return; or if you didn’t pay your required quarterly estimated payments last year,” says Logan Allec, CPA and founder at Choice Tax Relief. These penalties include:
● Failure to pay penalty (if you don’t file an extension): The failure-to-pay penalty is charged when you don’t pay your taxes on time and is calculated as a percentage of the unpaid tax amount. According to the IRS website, this penalty “is one-half of 1% for each month, or part of a month, up to a maximum of 25%, for the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.”
● Interest on unpaid tax (if you don’t file an extension): This penalty is charged on any unpaid tax from the due date of the return until the payment date in full. “The interest rate is determined quarterly and is the federal short-term rate plus 3%. Interest compounds daily,” according to the IRS website.
● Failure-to-file penalty: If you owe tax and don’t file on time, there is a penalty (even with extensions). The failure-to-file penalty is generally 5% of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%.
● Underpayment of estimated tax penalty (if you don’t make your quarterly estimated tax payments): If you fail to pay enough taxes through withholding or estimated payments, you might incur a penalty. The penalty, according to Allec, “accrues on any unpaid or underpaid estimated tax payment from the date the payment is due until the earlier of when the estimated tax payment is made or the due date of the return. The underpayment penalty is… equal to the federal short-term rate plus 3%.”
2. How do I know what to pay for my taxes if I haven’t filed a tax return?
“[Do] your best to compile the information that you have,” says Andrea Harrington, CPA and partner at Fiondella, Milone & LaSaracina LLP and use that to estimate. You can also use tax software or give the information to your tax preparer to calculate an estimated tax.
3. Are the filing dates for all personal and business tax returns the same?
No. April 15 is the deadline for most types of tax returns, and it’s also the deadline to file for most types of tax extensions. However, S corporation and partnership tax returns are usually due on March 15, and extensions must be filed by then, Allec says. “There’s some confusion about deadlines, because the dates changed a few years back for S corps and partnerships.”
S corporations are businesses that pass corporate income, losses, deductions and credits directly to their shareholders for federal tax purposes. Shareholders then report these pass-through earnings and losses on their personal tax returns, where they are taxed based on their individual income tax rates. Many small businesses operate as S corporations.
4. Do I need to file for a state tax extension if I’ve filed for a federal tax extension?
Sometimes. In many states, such as California, you don’t have to file a separate state tax extension. Other states, such as New York, require that you do.
If you live and work/have a business in one of the states with no state income tax, you do not need to file a state income tax return or request an extension. There are some exceptions. If you have a C-corporation in Florida, which does not have a state income tax, you must pay a 5.5% corporate income tax.
For federal income tax purposes, a C corporation is treated as an independent taxpaying entity. It operates as a business, generates profits or losses, pays taxes and distributes earnings to its shareholders. Most big businesses operate as C corporations.
To determine your state tax extension rules, check your state’s department of revenue or department of taxation website for the latest information, says Allec. You can also check the extension rules on your state’s tax forms, he says.
5. When is filing a personal or business tax extension a smart move?
Here are some of the main reasons:
Waiting for K-1 investment tax forms
Schedule K-1 forms are tax documents that report an individual partner’s, shareholder’s or beneficiary’s share of income, deductions, credits and other items from certain businesses. These forms are used by pass-through entities, which do not pay income tax themselves but pass the tax responsibility to their members. Pass-through entities include partnerships and S corporations.
Partnerships and S corporations can request a six-month extension, moving the deadline to Sept. 15 for calendar-year entities.
K1 returns tend to be more complex, taking longer to complete, says Harrington. “We do get a flurry of them in August for our clients,” she says.
Monitoring audit results
“If you are under audit, you might want to wait to see what the results of the audit are,” says Harrington, “in case there are positions that you’re currently taking that are challenged or [reversed].”
For example, during an audit, the IRS might challenge your auto use percentage if you can’t substantiate the business use percentage, she says.
Anticipating changes to legislation
Another reason to file an extension is to see if there’s any pending legislation that could change your filing position, Harrington says. “The federal government made some changes to research and development capitalization policies a number of years ago, and there was a lot of legislative buzz that caused people to extend to see if the ability to currently deduct these costs would be reinstated,” she says.
It didn’t happen, but if it had, the people who filed tax extensions may have been able to take advantage of that change. (The American Innovation and R&D Competitiveness Act of 2025 was reintroduced in March of this year but is not likely to become law in time to affect this year’s tax return.)
Adding money to business retirement accounts
Another reason to file an extension is because it may give you more time to put money into your defined benefit plan, says John Adams, CPA and owner of Bridgewater Tax and Financial Consulting.
Cash balance plans are a type of defined benefit plan that allows for a larger tax deferral compared to 401K plans, Adams says. “These plans are used by small businesses, high-income earners and professional firms like doctors and lawyers to defer more taxes. Each year, an employer adds money to a plan based on a percentage of salary and an interest credit.”
“Cash balance plans are one type of retirement plan that allows you to deposit money up until your filing extension deadline,” Adams says. “Certain types of small business retirement plans offer the same option as well, including Simplified Employee Pensions (SEPs), solo 401Ks or SIMPLE-IRAs.”
6. If I live and work in an area affected by a major natural disaster, will I have more time to file and pay taxes?
Generally, yes. For example, individuals, households, and businesses in Los Angeles County, California, qualify for tax relief due to the wildfires. The tax filing deadline for 2024 tax returns for that area has been extended to Oct. 15, 2025.
It’s an automatic extension, says Allec, which means you don’t need to file a tax extension to both file and pay your taxes by Oct. 15, 2025. You can also extend your IRA and HSA contributions until Oct. 15, 2025, as well, Allec says.
7. Should I file a tax extension?
“People should just view it [a tax extension] as a tool,” says Allec. “Like any tool, it can be for good…. More time to fund your SEP, more time to gather records [and] get your books together.”
Allec cautions that it can be easy to procrastinate. Oct. 15, the filing deadline for people with extensions, can come up fast, and you need to be ready to file your returns.
Photo courtesy of fizkes/Shutterstock
