What to Do if You Need to Extend Your Corporate Tax Return

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Mark J. Corey, CPA, JD

The C-corporation tax filing deadline has come and gone, however many corporations were not be able to file their return on time. What are the options when you cannot file your corporate return in a timely manner? 

Your best option is to file for an “Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns”, otherwise known as Form 7004. The IRS understands that sometimes a corporation cannot gather all of the information they need to file a complete and accurate tax return by the deadline, so they provide this mechanism to give the corporation more time to prepare their return.

The corporation just fills out Form 7004 with their name, identifying number and address and the IRS provides an automatic extension of six months to file the corporate return.  They do not even require an explanation of why the extension is needed as they did in the old days- if you ask for the extension they provide it automatically.

This may seem generous on the part of the IRS, but one thing they will not do is extend the time you have to pay any tax owed or for any estimated taxes that will be owed for the next year.  So, another part of getting an extension for your corporation is estimating how much tax you might owe or using a prior year tax “safe harbor” if you are eligible. 

There are two methods to figure the estimate- 100% of current year tax paid at a rate of 25% per quarter or 100% of prior year tax paid at a rate of 25% per quarter. The second method is known as the “safe harbor” for calculating your estimates and in order to use this method the following must be true:

  1. The corporation must have filed a return for the previous year,
  2. The return must have been for a full 12 months, and
  3. The return must have shown a positive tax liability (not zero).

One other wrinkle is the prior year “safe harbor” is not available to a so called “large corporation”.  A large corporation is any corporation that had taxable income of one million or more for any of the three years preceding 2017.  If you are a large corporation you can only use the safe harbor to figure your first quarter estimate (or extension payment if needed).

Getting an extension for your corporation is fairly easy, but just make sure you calculate what will be owed in order to avoid any penalties and interest for not having enough paid in to cover the tax you owe for the prior year and any estimates for the current year.

Calculating the proper payment to make with an extension can be complicated so please consult with your professional tax advisor if you have questions on the applicability of these rules.