“Tax extensions still require you to pay your estimated tax bill or you will owe in penalties – audits are more common with those that file on time. Don’t be afraid to go for the extension, just be sure to estimate your taxes correctly!” Says Sharon Tsao, CMO, Contemporary Staffing Solutions.
What to Know About Filing a Tax Extension
If you do file an extension, it does not give you more time to pay what you owe. You must make an accurate estimate and pay that amount along with your extension. If you fail to send an accurate estimate, the IRS can invalidate the extension, leaving you on the hook for underpayment and late payment penalties.
Most businesses can file an extension using IRS form 7004: Application for Automatic Extension of Time to File. Due dates can vary by business structure:
- S-Corp: 15th day of the 3rd month after the end of your tax year.
- C-Corp: 15th day of the 4th month after the end of your tax year.
- Partnership: 15th day of the 3rd month after the end of your tax year.
Corporations on a fiscal year running July 1 to June 30 should pay close attention to their deadlines. There are also many exceptions and rules for companies that have changed structure, that have shareholders and are pass-through entities.
The Audit Connection
So, what about the fear that an extension triggers an audit? The fact is, no one knows just what criteria the IRS uses to trigger an audit. However, there is anecdotal evidence to suggest that things like repeated inaccurate filings and filings that use “creative” accounting might be more likely to trigger a close review.
When it comes to extensions, many CPAs believe that filing an extension can actually lessen your chances of being audited. They posit (but cannot be certain), that the IRS has audit quotas beginning during tax filing season, and once those quotas are met, employees are disincentivized from flagging any more.
Nearly 10 million individual and business tax extensions were filed last year, which means that extensions are not rare, and the IRS isn’t any more tuned into those returns than those filed in Q1. The IRS grants extensions in good faith, with no questions asked because filing an extension indicates your desire to accurately comply with government regulations. It’s better to file the formal paperwork and pay your estimate than it is to ignore returns or simply file a full return late.
The Best Way to Avoid An IRS Audit
The best way to avoid an audit is to work with CPAs and financial pros who can keep you off the IRS’s radar. If your company is seeking top accounting and finance talent, or you want to improve your accounting and finance hiring processes, contact the expert A & F recruiters at Contemporary Staffing Solutions today.