First, some good news. The March 15 deadline is actually March 16. Go ahead and breathe a big sigh of relief, now that you know you have an extra 24 hours to get your act together. Here's why: Whenever a federal tax deadline falls on a Saturday, Sunday or federal holiday, the deadline is automatically moved to the next business day. Since March 15 is a Sunday, the deadline is changed to Monday March 16.
Second, more good news. Keep in mind that to comply with the March 16 deadline, the appropriate tax forms discussed below must be postmarked on or before that date. To file on time does not mean that the IRS must receive the return on or before that date.
Now let's move on to discuss what you must do by March 16.
If your business is a corporation, whether a regular C corporation or an S corporation, March 16 is the deadline for filing your corporate income tax return. C corporations file Form 1120; S corporations file Form 1120S.
If you are unable to file your corporate income tax return by March 16, do not despair. You can obtain an automatic, "no questions asked" extension by filing Form 7004 on or before March 16. Form 7004 works for either C corporations or S corporations. It is also one of the easiest tax forms to complete and does not require a signature.
By filing Form 7004 you are given an additional six months to file the corporate income tax return. The March 16 deadline has been magically changed to September 15. Now you can do the return in the lazy hazy days of summer, if you like.
If you go the extension route, here are some words of caution. Don't forget that filing an extension only extends the time to file the return. It is not an extension of time to pay any tax due on the return. For S corporations, this is usually not a problem, because S corporations typically don't pay any corporate income tax. But for C corporations, if you have a balance due on the return and wait until September 15 to pay it, you will be charged late payment penalties and interest. So if you own a C corporation, do enough calculating to determine whether you will owe tax and make a payment if necessary by March 16.
For S corporations, also remember that you really need to prepare Form 1120S before you can properly prepare your personal income tax return. So don't file Form 7004 and then file your personal return before doing the corporate return. As part of the corporate return, S corporations give each shareholder a Schedule K-1, which reports your share of the corporation's profit or loss. That K-1 information must be transferred to your Form 1040. So if you file an extension for Form 1120S, you will also need to file an extension for your Form 1040, unless you happen to get the corporate return done by April 15.
For starters, you'll be protecting yourself and your family from the possibility of a business ending lawsuit. Forming a corporation is Step One on the path known as "Asset Protection" -- you are moving from the world of unlimited liability to the world of limited liability.
From a tax standpoint, there are both advantages and disadvantages to incorporating. Yes, forming a corporation can either reduce your taxes or increase your taxes, depending on what type of corporation you create.
There are two main types of corporations: "C" Corporations and "S" Corporations -- and which type you choose can make all the difference in the world of taxes.
NOTE: The question of "C" Corp vs. "S" Corp has no effect on the asset protection provided by your corporation. This is a tax issue, not a legal issue.
A "C" Corporation can lead you into a Tax Trap known as "double taxation". Yes, this type of corporate income can be taxed twice -- once when it's earned on the corporate level and again when it's paid to you, the shareholder, in dividends.
There are several ways to avoid double taxation. Often the easiest way is to tell the IRS that you choose to be an "S" Corporation, whose profits are not taxable to the corporation. Instead, those profits are reported directly on the shareholder's personal income tax return and are therefore only taxed once.
And once is enough, don't you think?
Of course, any article on Choice of Entity must contain the old disclaimer, "Consult your tax professional" -- I am not prescribing a one-size-fits-all approach to this issue. But for many small biz owners and self-employed folks, the "S" Corporation is a good fit because it provides protection from personal liability and avoids the nasty tax trap of double taxation -- two great benefits worth checking into.
Should you incoporate your sole proprietorship and then decide that the "S" Corporation is the right fit, you must inform the IRS that your corporation is choosing "S" Corporation status by filing Form 2553, which is, in effect, an application to become an "S" Corporation.
IMPORTANT: If you incorporate and do not file Form 2553, you are automatically considered to be a "C" Corporation by the IRS. In other words, to be a "C" Corporation, you just incorporate; there is nothing you have to do to inform the IRS you want to be a "C" Corporation.
There are critical rules regarding how and when to file Form 2553, so be sure to read the instructions carefully, or check with your tax pro.
Failure to file Form 2553 on time or filing Form 2553 incorrectly results in a rejection of your corporation's "S" Corp application, and the corporation is then by default treated as a "C" Corp, subject to double taxation, the very trap you were trying to avoid.
Wayne M Davies has sinced written about articles on various topics from . Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit