Did You Miss the S Corp Extension Due Date? Here’s What to Do Next.

Today, I want to talk about the consequences of missed S corp filing and extension due dates and how S corp shareholders can seek relief from late filing penalties. You have options, but it is important to act fast.

In this article, I’m going to cover the following:

1. What happens when S corps miss their tax deadline?
2. What happens when you also miss the extension deadline?
3. What penalties might you face?
4. How can you soften the blow?

The key thing to know is that the situation is manageable. Of course, we’re past a few of the deadlines right now, but I want to give some background information before we move on to remedies.

First, let’s review how S corp liability works.

When you do business as an S corp or are a partnership that elects to be taxed as an S corp, your business doesn’t have to pay federal corporate income tax. Instead, income is reported on personal income tax returns.

However, shareholders still need to file a tax return via Form 1120-S, the income tax return for S corporations.

Here’s how S corps file tax extensions.

If you need more time to file Form 1120-S, you can request an automatic six-month extension by submitting Form 7004 to the Internal Revenue Service (IRS) by the original March 15 deadline. It requires some basic information like your EIN, business name, address, and tax year details.

Remember, you don’t need a reason to file an extension.

There are compelling reasons, but it’s your right as a business owner and citizen to file an extension.

Form 7004 provides a six-month extension to file S corp taxes.

Form 7004 is automatically approved if filed on time by March 15. You don’t need to give a reason or explanation. You’ll simply get your deadline moved to September 15.²

But there is one catch. The extension only applies to filing the return, not paying owed taxes. To avoid penalties and interest, you’ll need to estimate your tax liability and make a payment along with your extension request.

If you miss the extended deadline, the penalties are the same.

You’ll still face late filing penalties (based on the number of shareholders) and interest on unpaid taxes. The difference is those penalties kick in on September 15 instead of March 15.

If you miss the deadline, you’re subject to penalties.

Two penalties for S corps missing the filing deadline are late filing penalties and interest on unpaid taxes.

Late filing penalties accrue quickly and vary depending on shareholders.

The IRS charges a penalty for each month your return is late, based on the number of shareholders. The penalty is $220 per shareholder per month, and it applies even if the shareholder doesn’t owe taxes.¹

Suppose your business has multiple shareholders; the fines can quickly get out of control. With five shareholders, a three-month delay could result in thousands of dollars in penalties.

Interest on unpaid taxes adds up.

This second penalty is simple: If you owe taxes, interest will accrue until you pay them.

So you missed the S corp deadline. Now what?

First of all, don’t beat yourself up. A lot of S corps miss either the March 15 deadline or, in some cases, the September 15 deadline if they get an extension. But it is important to act fast to prevent more damage. Here are the five steps you should take immediately:

1. File your late return.
2. Pay any taxes you owe.
3. Request penalty relief, if applicable.
4. Set up a payment plan if needed.
5. Talk to a CPA.

Steps 1 and 2 are fairly self-explanatory. File your late return and pay owed taxes as fast as possible. The rest of the steps require a bit more explanation.

Late filing penalties can be waived.

There are two situations where the IRS can decide on penalty relief:

1. It’s the first time the S corp has missed the deadline.
2. Your company can show reasonable cause as to why you missed the deadline.

You only need one of the two to qualify.

Your business may be eligible for penalty relief.

If your S corp has a clean compliance history, you may qualify for first-time penalty abatement. It’s available if your business has filed all required tax returns, has no prior penalties in the past three years, and has paid or arranged to pay any taxes due. For those that qualify, the IRS may waive the late filing penalty.

S corps may also seek relief by arguing “reasonable causeSuppose

If you’ve been impacted by an event like a natural disaster, illness, or a system error that prevented you from filing on time, or you simply made a mistake out of ignorance. In that case, you may be able to waive your penalty.³ Reasonable cause is also a factor in late S corp elections, so we see that the IRS understands the complexities and disadvantages that first-time S corp shareholders face.

Nothing is guaranteed, but if you can provide documentation to support your claim, the IRS may consider reducing or eliminating your fees.

To request penalty relief, submit Form 843.

Penalty relief starts with submitting Form 843. You’ll need to outline your payment history and explain your case in detail, covering why you qualify for either first-time or reasonable cause Penalty Abatement.

Meet with an expert.

If you own an S corp and think you may face a late-filing penalty, don’t hesitate to contact a CPA. They’ll be able to help you navigate the consequences of missing your deadline and identify the best path forward. Whether that means applying for penalty relief or setting up a payment plan, they can help.

And just as important, they can also help you be better financially organized, so you prevent future penalties.

Get assistance with late filing, extensions, and penalty mitigation today.

If you need assistance navigating late filings or penalty relief for your S corp, schedule a discovery call with us today.

Talk soon,
Jeremy A. Johnson, CPA

References

1. Internal Revenue Service. Information About Your Notice, Penalty and Interest. Irs.gov. December 2024. Available from: https://www.irs.gov/pub/irs-pdf/n746.pdf
2. Internal Revenue Service. Instructions for Form 7004 Irs.gov. December 2018. Available from: https://www.irs.gov/instructions/i7004
3. Internal Revenue Service. Penalty relief for reasonable cause. Irs.gov. September 2024. Available from: https://www.irs.gov/payments/penalty-relief-for-reasonable-cause