How to Extend an S Corporation 1120S Tax Return

While the 1120S federal income tax return for a subchapter S corporation is typically due by March 15, the S corporation can easily extend the due date of the tax return until Sept 15.

For example, for the calendar year ended 12/31/2016, the original due date is March 15, 2017, but the S corporation can extend the due date until September 15, 2017.

Why Extend an S Corporation Tax Return?

You want to extend an S corporation tax return to avoid the late K-1 penalty. And this penalty has become increasingly brutal.

Here's how the penalty works. If you don't either file your 1120S tax return or extend the tax return on or before the original return due date (typically March 15), the IRS assesses a penalty of $195 on March 16 for each K-1 you didn't file on time.

As you may know, an S corporation owes a K-1 for each shareholder. Accordingly, if you have an S corporation with, say, 3 shareholders, not filing or extending by March 15 means a $585 penalty (3 times $195) on March 16.

If you don't file by April 15, on April 16 another $195 per K-1 penalty is assessed. With three shareholders, to continue the example, that's another $585. Ouch.

The IRS will continue to assess the $195 penalty for each K-1 for up to twelve months.

How to File the 7004 Extension

You extend the due date for an S corporation 1120S tax return by filing a Form 7004 with the Internal Revenue Service on or before March 15.

The form, which is available for free (click here) from the IRS website, requires only a few bits of information: your S corporation's name and address, its employer identification number (EIN), and then the code for an S corporation, the value 25, which goes into the Part IIb box.

The address you send the 7004 to depends on where the S corporation operates. Given the ugly penalties, you want to double-check these addresses (which were current as of the summer of 2016):

If the S corporation operates in: Then send Form 7004 to:

Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, or Wisconsin

and

The total assets of the S corporation are less than $10,000,000

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999-0045

Any other state

or

If the assets equal or exceed $10,000,000

Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0045

 

When S Corporations Owe Taxes With the Extension

An S corporation can typically ignore Part III of the 7004 form, which asks for an estimate of the income taxes the S corporation owes. S corporations usually don't owe income taxes themselves. Rather, they foist off the income taxes on their profits to their shareholders.

In the handful of unusual situations where an S corporation actually does owe income taxes on its tax return (see here for more information), you also need to pay any remaining portion of these income taxes still owed by the March 15 original tax return due date with the 7004 extension.

By the way, if you don't either pay these taxes or extend the 1120S tax return by the original due date (again, typically March 15), the S corporation also gets hit with another penalty, too.

This penalty equals 5% of the tax due and gets assessed on March 16 (if you haven't paid or extended), and then again on April 16, May 16, June 16 and July 16 if you still haven't filed the 1120S return or paid the tax on these dates). In total, then, in the unusual situation where your S corporation itself owes income taxes, a penalty equal to as much as 25% of these taxes owed can also be triggered by failing to extend.

Caveats and Exceptions to the General Rules for 7004 Extensions of an 1120S Return

Let me share some quick caveats and exceptions related to the general rules discussed in the preceding paragraphs.

First, if one of the dates given falls on a weekend or holiday, the due date is the next regular work day. For example, if March 15 falls on a Saturday, the due date becomes Monday March 17 because that's the next regular work day.

Second, most states that require S corporation tax returns will also either honor or recognize the federal extension. But you should double-check with your state's revenue agency.

Third, remember that even though the S corporation may be able to delay filing its tax return until the fall by using an extension, S corporation shareholders should still pay the income taxes on their shares of S corporation profits by their April 15 individual tax return due date.

Fourth, some S corporations don't use a calendar fiscal year. If this is your situation, you should consult with your tax advisor about extending your 1120S tax return because some other complexities come into play with these non-calendar-year S corporations.

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