Filing for a tax extension is a common and practical move for many startups. Whether you’re still gathering financial records, waiting on documents, or simply need more time to ensure your filings are accurate, requesting an extension can help you avoid costly mistakes and penalties.

Why Startups Need an Extension?

Startups often file business tax extensions when;

• Their financial records are incomplete.
• They’re facing cash flow issues.
• They want to avoid rushing and risking errors that could trigger an IRS audit or penalties.
• Unexpected events or delays have made it impossible to file on time.

Remember, an extension gives you more time to file your tax return-not more time to pay any taxes due. Taxes still need to be paid by the original deadline to avoid penalties and interest.

How to File a Tax Extension

Step 1: Know Your Deadlines,

Understanding the correct deadlines is crucial for startups to avoid penalties and late fees.

The Key Tax Deadlines for Startups were March 15, 2025. This is the original tax filing deadline for partnerships and S Corporations. April 15, 2025 is the tax filing deadline for C Corporations and sole proprietors (including single-member LLCs) in the United States. If a startup files for an extension on or before the original deadline, they can get an extra six months to file their returns. The Extended deadline for Partnerships and S Corporations is September 15, 2025. For the C Corporations and sole proprietors; the Extended deadline is October 15, 2025. These Deadlines matter because missing these deadlines can lead to significant penalties. For example, if a partnership misses the March 15 deadline and doesn’t file for an extension, the IRS may charge a penalty of $210 per month per partner.

Let’s Imagine Ahmad is running a tech startup registered as an S Corporation. His original tax filing deadline for the 2024 tax year is March 15, 2025. If he realizes in early March that he is missing some financial documents and needs more time, he needs to file for an extension by March 15, 2025. By filing the extension on time, Ahmad’s new deadline to submit his completed tax return becomes September 15, 2025. However, any taxes he owes are still due by March 15, 2025. If he pays late, he will be charged interest and possibly penalties, even if his extension is approved.

Gather Essential Information

Before you file a tax extension for your startup, it’s crucial to gather all the necessary information. This step ensures your extension request is accurate and avoids delays or issues with the IRS.

• The first information needed to gather is the Employer Identification Number (EIN) which is a unique nine-digit number assigned by the IRS to identify your business for tax purposes. The IRS uses your EIN to track your business’s tax filings, payments, and correspondence. It’s similar to a Social Security Number, but for your business.
• The Second information is your business’s legal name and address exactly as it appears on prior tax returns.
• The third one is tax form number which is the  specific IRS form your business uses to file its annual tax return. The form depends on your business structure, you’re requesting an extension for. For example 1120 for C Corps, 1065 for partnerships. It is important because The IRS needs to know which return you’re extending. Entering the wrong form could result in your extension not being applied correctly.
• The last one is Financial records to estimate how much tax your business owes for the year, how much you’ve already paid (through estimated payments or withholdings), and what balance remains

Even though you’re asking for more time to file, you still need to pay any taxes due by the original deadline to avoid penalties and interest. The IRS expects your estimate to be as accurate as possible.

Submitting extensions on time.

For partnerships and S-Corporations, Form 7004 must be filed by March 15, 2025, while C-Corporations and sole proprietors using Form 4868 have until April 15, 2025. Missing these deadlines can lead to hefty penalties-for example, a partnership that files late could face a penalty of 5% of unpaid taxes per month, up to 25% of the total tax bill. Even if you’re granted an extension, taxes owed must still be paid by the original deadline to avoid interest and penalties. For instance, if a sole proprietor estimates they owe $10,000 in taxes but only pays $7,000 by April 15, they’ll accrue interest on the remaining $3,000 until it’s paid, regardless of their extension status. Always aim to submit your form electronically (via IRS Free File or tax software) for instant confirmation, and keep records of your submission in case of disputes. If you’re a solopreneur with a side hustle, like a photographer using Form 4868, set calendar reminders for April 15 to avoid last-minute stress. For startups with complex structures, such as a multi-state LLC taxed as a corporation, consult a CPA to ensure accuracy and compliance.

Conclusion

Filing a tax extension is a practical solution for startups needing extra time to organize financial records, gather missing documents, or ensure accuracy in their tax filings. While an extension provides up to six additional months to file, it’s important to remember that any taxes owed must still be paid by the original deadline to avoid interest and penalties.

Understanding deadlines, preparing the right information, and submitting the correct IRS form on time can help startups take full advantage of the extension period. Electronic filing offers instant confirmation and reduces the risk of errors. For startups with complex needs, working with a tax professional like us startup consultancy we can streamline the process, ensure compliance, and let founders focus on growing their business with confidence.