TAX

Filing A Tax Extension Information

Tax season can catch many entrepreneurs off guard. Whether you simply forgot about your tax deadline or encountered difficulties or unexpected complexities when preparing your return, the IRS allows you to request an automatic six month extension to file. Extension requests are generally due on April 15th for Schedule C filers and partnerships and March 15th for corporations, and can postpone your filing deadline to October 15th or September 15th, respectively.

LANDLORD / AIRBNB HOST

Sidney is a homeowner who uses Airbnb to host guests year round. Throughout the year she kept good records of all her transactions, including repairs and maintenance, utility expenses, and other costs related to her rental business. She did not however receive her Form 1099 from Airbnb until April 5th since it was lost in the mail. When her 1099 did arrive Sidney was just too busy to prepare her taxes so she instead completed Form 4868 and was able to extend her filing due date to October 15th.

COURIER

Jack is a part time driver for Instacart who also has a regular 9 to 5 job. Last year Jack didn't make any estimated tax payments on his Instacart earnings. On April 15th Jack filed Form 4868 with the IRS to extend his 1040 due date by six months. When Jack extended his returns he did not send in any estimated tax payments since he assumed the withholdings from his W2 wages would cover his entire tax liability. In October, Jack's tax preparer informed him he owed $1,200 more in taxes than was withheld from his paycheck due to his Instacart job. As a result, when Jack filed his 1040 in October he had to pay the $1,200 of taxes he owed plus a penalty and interest on his late payment.

UBER DRIVER / RIDESHARE

Nicholas is a new sidecar driver who didn't realize all of the tax implications associated with his driving business until April 10th. Rather than rush preparing his returns, he filed Form 4868 so he could have some extra time to compile his financial information. What Nicholas didn't do when he filed his extension was send the IRS payment for his outstanding $4,000 tax liability. Despite the underpayment, the IRS still chose to grant him the six month extension he requested. Unfortunately for Nicholas, six months later when he did complete his tax return he realized he owed the IRS a penalties and interest in addition to the $4,000 of taxes that was due in April.

ENTREPRENEUR

Eva is a solo entrepreneur who organized her business as a C-Corp. Unbenounced to Eva, she realized on March 14th the deadline for corporate taxes was March 15th. Rather than pull an all nighter preparing her tax return, she instead submitted Form 7004 along with payment of her estimated tax liability and was able to delay filing her business tax return until September 15th.

REAL ESTATE AGENT

Henry is a real estate agent who uses Hurdlr to keep records of his business income and expenses in real time. Last year, Henry didn't have hurdlr so it took him longer than expected to aggregate his financial information, which resulted in him filing an extension. Even though Henry didn't file his prior year returns until October 15th last year, he can still file on April 15th this year since all of his information is ready to go in hurdlr.

WHAT TO KNOW ABOUT FILING A TAX EXTENSION

The most common extension filings are Form 4868 for individuals / Schedule C filers, and Form 7004 for businesses, including partnerships, C-Corps, S-Corps, etc. If you file the aforementioned forms on or before the due date of your taxes you can be granted an automatic six month extension to file your returns. Refer to the IRS website (link below) for a full list of extension forms.
Filing an extension only applies to your tax returns, it does not apply to any taxes you owe. If you owe taxes you should pay any estimated outstanding tax liability when you request your six month extension.
The IRS can disallow your extension request if they believe that the estimated tax amount you paid is unreasonable. Further, if you underestimate your tax liability when you submit your request for extension you may be subject to interest and penalties on unpaid amounts.
Special rules may impact your ability to file an extension if you are living outside the United States, are out of the country when your extension lapses or if you work in certain 'hazardous duty' areas. Refer to the IRS for additional details.
Extension filings cover a one year period. Further, there is no limit to the number of times you can request an extension. For example, you could request an extension in 2014 and file on time or choose to extend again in 2015.

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