If You Filed an Extension, Your Taxes Are Almost Due: Are You Prepared?

Last Updated on September 6, 2019

If you filed a tax extension this year, you have until October 15 to submit your full return. But what if you owe back taxes and cash flow hasn’t been as good as you expected between April and October?

Dealing with emergencies and unforeseen circumstances can make you wonder how to meet your tax extension deadline. Don’t let a lack of resources make you panic; funding and payment options are available to help you meet your obligations to the IRS and move forward free from tax debt.

tax extension hourglass

What a Business Tax Extension Is – And What it Isn’t

Filing for an extension gives you an extra six months to prepare and submit a complete tax return.

Instead of filing your usual tax forms by the April 15 deadline, you fill out Form 4868 and submit it to the IRS along with an estimated payment to cover your tax obligations. You then have until October 15 to finish your normal return.

There are a lot of reasons why you might need to file an extension for your business:

  • You’re crazy busy and don’t have time for a detailed return
  • You don’t have all the information you need to properly fill every form
  • You need more time to work out your deductions and exemptions
  • You’d rather wait until your accountant isn’t overwhelmed with preparing returns
  • An important business trip coincides with Tax Day
  • An emergency takes you away from your normal role in the business

Sending in Form 4868 with a payment of at least 90% of what you expect to owe for the tax year protects your business from late payment and late filing penalties in all of these situations. Notice, however, that you can’t file an extension by itself and expect to delay your payment. The time you’re granted with an extension should be used to fill out a detailed return, not try to gather funds to cover tax debt.

What Happens if You Miss the Tax Extension Deadline for 2019?

Failing to file taxes by April 15 is expensive. The IRS charges 5% of your unpaid taxes for every month you miss after the due date, up to 25% of your total balance. An extension waives this fee, but sending an extension request without a payment means you’re subject to a failure-to-pay penalty of 0.5% to 1% of unpaid taxes every month. If you miss the October 15 filing deadline, you’ll also be charged the 5% failure-to-file fee. Then there’s the interest, which changes every quarter but is usually between 3% and 6%, compounded daily, on whatever balance you still owe. 

You can see how fast these penalties and fees add up. The longer you wait to pay, the more you owe, which is why you should do everything you can to get your return or extension request in by April 15 with whatever amount of your taxes you can afford to pay at the time. Doing so reduces the amount of penalties and shows the IRS you haven’t simply decided to skip filing.

If the IRS doesn’t get anything from you by the extension deadline, they’ll fill out a substitute return on your behalf and send you a notice of what you owe. Because this return doesn’t include any of your exemptions or deductions, the amount could be significantly higher than your actual tax obligation. You have 30 days from the time of notification to dispute or resolve the payment and avoid going into collections.

Payment Plan Options for Settling with the IRS

The IRS offers payment options for individuals and business owners unable to pay their taxes in full by the filing date. Payments are spread out in monthly installments that fit your budget. Eligibility for these plans depends on how much you owe and the length of time you require to pay off your debt:

  • $10,000 or less over 120 days – short-term payment agreement
  • $50,000 or less over 6 to 10 years – individual installment
  • $50,000 or more over more than 120 days – installment agreement
  • $25,000 or less of back taxes over 24 months – small business agreement
  • Between $10,000 and $25,000 of business back taxes – direct debit installment agreement

You also have the option to make an offer in compromise. This is a form of IRS debt settlement that allows you to pay off tax debt for less than what you owe. You make an offer, and if the IRS considers it reasonable in light of your income and the equity value of your company’s liquid assets, they’ll allow you to pay the smaller amount in a lump sum or monthly installments.

Note that there’s a $186 fee to apply for an offer in compromise, and some installment plans also have additional fees on top of what you already owe.

How to Pay Off IRS Debt Fast with a Business Loan

Payment plans can prevent late payment penalties from cutting into your bottom line. Unfortunately, you wind up being indebted to the IRS for your back taxes while still being responsible for future tax payments. What if there was a way to take care of everything before the extension date and stop worrying about your payment?

How about using a business loan to pay off tax debt? Alternative lenders provide several options for meeting your obligations:

  • Working capital loans Short-or long-term financing to pay off back taxes and handle current expenses, available in a few days following application approval
  • Business lines of credit – A source of additional funding to cover your tax debt or monthly installment payments, which you can continue to draw on for other business needs after tax season is over
  • Accounts receivable financing – Delivers funding from outstanding invoices, giving you the money you need to meet the tax extension deadline without having to chase down customers for payment
  • Merchant cash advances Fast access to cash based on a percentage of future credit card sales, which is paid back on flexible terms but is often more expensive than other options

Some lenders may not approve your application if you have an existing tax lien, but many are open to working with businesses in tough financial situations. You can also consider these loan types to manage quarterly taxes throughout the year and prevent future concerns over your IRS payments.

Do You Need a Business Loan to Cover Tax Debt?

Although your best option is to pay your taxes on time, this isn’t always possible, especially if your business experiences unexpected financial difficulties or you operate in a volatile market. Taking out a loan can provide tax debt relief and give you the opportunity to pay your back taxes right away, avoiding any further penalties.

National Business Capital & Services offers a variety of business loan products to help you get out from under your tax debt and put your business back on track. Explore your options to find the right solution for your financial situation so that you can meet the October 15 deadline without any problems.

National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

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About the Author, Matt Carrigan

Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.