Each year, millions of people in the U.S. file a business tax extension form. There are many reasons business owners choose to delay filing taxes, but one of the best is that it gives them the time and opportunity to carefully review expenses and optimize their tax savings. Because filing for a tax extension is simple and straightforward, strategic business owners often file for the extension and use the added time to maximize tax benefits—even if they don’t technically need the extra time. This is how to file a business tax extension for your 2020 taxes. 

Is it a good idea to file a business tax extension?

It can be a very good idea to file a business tax extension, thereby moving your tax deadline up by six months. In 2021, the normal business tax deadline is March 15, 2021 and personal returns by April 15. The business tax extension deadline is September 15, 2021. 

When you file a business tax extension, you gain the benefit of extra time to examine your expenses more thoroughly and pinpoint overlooked opportunities for tax write-offs. Because there is no penalty for extending your tax deadline, we recommend making use of the business tax extension, when needed, to make sure you are maximizing available tax deductions.

You can file for a tax extension by completing IRS form 7004 (for business taxes) or IRS form 4868 (for personal income tax returns). 

There is just one caveat: always estimate how much tax you think you owe and then send the estimated payment in with your extension. You can get a refund later if you overpay, but you’re likely to incur penalties or interest if you don’t pay at all. This is because an extension gives you extra time to file your return, but it doesn’t extend the deadline for paying the taxes that you owe.

Common deductions to consider 

Once you have filed your business tax extension form, you can begin looking for more ways to maximize your tax advantage. Many potentially valuable write-offs are missed in the rush to file in spring, which is why we recommend using this six-month extension period to investigate common deductions like the following.

COVID-19 tax relief

2020 was obviously a difficult year for many businesses in many sectors. Due to this, the IRS has provided tax relief options made for small business owners. You can find the full IRS guide here. 

In general, many businesses may benefit from refundable tax credits against employment taxes with the Employee Retention Credit. Others may find allowable deductions with paid leave for workers and tax credits for businesses with fewer than 500 employees. 

This is a complicated and new area of regulation. With a business tax extension, you’ll have more time to figure these deductions out, but it may also make sense to bring in a tax professional this year–even if you haven’t done so in the past. 

Travel-related expenses

Business owners consistently underutilize this valuable tax deduction, which covers travel expenses like airfare, accommodations, and transportation-related costs such as rental cars, valet services, taxis, trains, tolls, and more. 

Travel expenses are 100% deductible, unlike meals and entertainment costs, which are limited to a 50% deduction. Analyze your travel from the past year and note any instances where you met with a client or vendor, had a business meeting, toured a facility, met with your board of directors or shareholders, held a conference retreat, and so on. 

Be sure to list everything related to these travel expenses so you can deduct them on your tax return.

Auto deductions

If you use a car or truck for any business-related activities, you can confidently list those expenses on your tax return. There are two main ways to calculate this deduction: based on your mileage or on actual expenses. 

Overwhelmingly, business owners choose the mileage method, which comes to 57.5 cents per business mile. Note that the IRS recently changed these rates from 57.5 to 56 cents per mile. You’ll still deduct at a 57.5 cent rate for 2020 taxes, and then switch to 56 cents per mile on next year’s 2021 tax returns. 

Don’t shy away from claiming your true mileage on your return: if you keep reasonably good written records, you shouldn’t fear an audit. Even if you haven’t been extremely detailed, you can still make an estimate and take the deduction.

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Dining and entertainment

All those dinner engagements, lunch dates, and morning coffee meetings can add up to a healthy deduction—especially if you spent the time discussing business with a partner, potential client, vendor, or strategic ally. 

Business owners sometimes minimize this line item, but you are entitled to the full deduction in all of those scenarios so be honest about your actual expenses and don’t hold back. 

Office supplies and technology

The majority of your office supplies and technology purchases can be fully expensed, whether you’re upgrading your phone, buying new computers, or ordering iPads for everyone. In 2020, this also likely included sanitation supplies and home office equipment for employees. 

Keep every receipt and list every expense so that you receive the maximum tax benefits you are entitled to.

Other business deductions 

Remember that you may be entitled to many more tax advantages than you are aware of: business owners frequently miss opportunities for valuable deductions simply because they don’t understand all that’s available to them or they are worried about an audit. 

However, if you’ve been keeping accurate records, there is no reason that you shouldn’t list the full amount of all your business expenses, from travel to technology, and take the appropriate deductions. 

Use the extra six months to search through your credit card and bank statements, as well as your receipts, to uncover anything that can help you this tax year. Even if you think you have a good argument for taking a deduction and the IRS disagrees, the worst thing they can do is to disallow it. 

How to file a business tax extension

To file a business tax extension, simply complete and submit the necessary IRS form. If you estimate that you will owe money to the IRS this year, you should include your estimated payment along with your extension form to avoid incurring fees and penalties later. 

Remember that a tax extension extends the time you have to file your return, but not the time you have to pay it.

2021 business tax extension forms for 2020 tax year

If you’re an incorporated business or LLC, use the IRS business tax extension form 7004. If you are a sole proprietor submitting an individual income tax return, use the IRS form 4868

You can submit your tax extension form online via IRS e-file providers or by mail.

Business tax extension deadline 2021

In 2021, the normal business tax deadline is March 15, 2021 and personal returns (for sole proprietors) are due by April 15. The business tax extension deadline in 2021 for 2020 tax returns is September 15. 

Make tax time easier

PaySimple knows you don’t have hours to waste on back-end accounting, which is why we make it so easy for you to see your business’s financial progress in real time. With PaySimple, you can integrate your payment solution directly to QuickBooks so your tax filing process is efficient every year. Feel prepared come tax time, with accurate and up-to-date records that help make filing business taxes easier than ever! To get started with PaySimple, sign up for a free trial!

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