Tax Extensions for S-Corps

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Overview

An S-Corporations is an entity where a corporation's profit or loss is "passed through" and are reported on the tax returns of the underlying shareholders. Even though the tax liability is passed to the individual shareholders, the S corp is required to file a tax return each year on IRS Form 1120S, which includes attaching Schedule K-1 that reports the profit or loss for each shareholder of the S corp. 

S-Corp Tax Return Deadline (IRS Form 1120S)

S-Corporation tax returns are due no later than the 15th day of the third month following the end of the corporation's tax year. For calendar year filers, this is March 15th or the first Monday after March 15th, in years that it falls on a weekend. 

S-Corp Tax Extensions

In the event an S-Corporation is unable to file IRS Form 1120S by the filing deadline, it can file IRS Form 7004 to obtain an automatic six-month extension. Taxpayers can File an S-Corp Tax Extension Online, where the taxpayer will receive electronic notification of approval or notification of rejection in a matter of minutes, or they may complete, print and mail IRS Form 7004 in paper form. In this case, the IRS never acknowledges receipt and approval of the extension but will send notification via the United States Postal Service, when an extension has been rejected, more often than not, long after the filing deadline has past and late filing penalties have already been triggered. 

S-Corp Late Filing Penalities 

The penalty for not filing either IRS Form 1120S or IRS Form 7004 by the due date is $195 per full or part of the month the return is late multiplied by the total number of shareholders of the S-Corporation. Since the maximum number of shareholders in an S-Corp is 100, the maximum late filing penalty that the IRS can impose is $19,500 per full or part of a month that the return is late, assuming 100 shareholders. 

Common S-Corp Tax Extension Mistakes 

S-Corporations are more accurately described as C-Corporations who have made, what is commonly referred to as, an "S election" with the IRS. An S election is made by filing IRS Form 2553, Election by a Small Business Corporation that allows the corporation to pass through any profits or losses to its underlying shareholders. It is very common for taxpayers to either mistakenly believe that the IRS recognizes their corporation as an S-Corp when the company has either failed to file IRS Form 2553 or the IRS has not yet approved the S-Corp election. Taxpayers who file IRS Form 7004 stating that they are filing for an S-Corp as an entity type, who have either not filed Form 2553 or have not been approved as an S Corp, will have their tax extensions rejected by the IRS because of an incorrect entity type. To rectify this, ideally, the taxpayer should call the IRS or their tax accountant and speak with them about the status of their S-Corp election. Unfortunately, more often than not, corporate tax extensions are filed very close to the filing deadline, so there is little time to resolve the situation. In those case, the taxpayer can elect to file their extension with an entity type of a C-Corporation so that the tax extension is approved and then address the S Corp election with the IRS.

It is also often overlooked that when an S-Corporation is filing an extension, it generally means that the underlying shareholders will not have their K-1's in time to file their personal tax returns and those shareholders will also need to file IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Tax Return. As with a Business Tax Extension, taxpayers can File a Personal Tax Extension Online or print and mail IRS Form 4868 in paper form. Again, In this case, the IRS never acknowledges receipt and approval of the extension but will send notification via the United States Postal Service, when an extension has been rejected, more often than not, long after the filing deadline has past and late filing penalties and interest charges have already been triggered.