The Pros & Cons of Filing an Extension on Your Business Taxes in 2025

Filing taxes is a necessary part of running any business, but for many small business owners, tax season can bring added stress and complexity. Deadlines are often tight, financial records might not be ready, and unexpected complications can arise. If you’re feeling the pressure as the tax deadlines approach, filing for a business tax extension might help you breathe a little easier.

But is filing an extension the right move for your business in 2025? Here’s an in-depth look at the pros and cons of filing a business tax extension, how it works, and what you need to consider before making the decision.

What Is a Business Tax Extension?

A business tax extension gives you additional time—typically an extra six months—to file your business tax return. The IRS allows businesses to request extensions using specific forms based on their entity type, like Form 7004 for partnerships, S-corporations, and multi-member LLCs, or Form 4868 for sole proprietorships.

Key Point to Note

A tax extension does not extend the deadline to pay your taxes—just the deadline to file your paperwork. Any taxes owed must still be estimated and paid by the original filing deadline to avoid penalties.

Whether you own a small business or a larger operation, an extension can offer some needed flexibility. However, it’s important to evaluate whether this decision makes sense for your unique situation.

The Pros of Filing a Business Tax Extension

Filing an extension can offer several tangible benefits that go beyond simply buying more time.

1. Avoid Rushing and Improve Accuracy

We’ve all experienced the last-minute scramble to compile financial records and file taxes. Filing an extension gives you the breathing room to ensure everything is accurate.

• Who benefits? Businesses with complex transactions, waiting on K-1 forms, or dealing with intricate reporting requirements.
• Why it matters: Mistakes on your tax return could result in IRS inquiries or penalties. Taking your time can save you these future headaches.

2. Strategic Tax Planning

An extension gives you extra time to make smart tax decisions. For instance, figuring out the best way to leverage deductions, credits, or large financial moves like equipment purchases or structural changes in your business.

• Example: Retail businesses may prefer to evaluate tax strategies after their holiday peak season is complete.

3. Seasonal Flexibility

Industries that experience busy seasons—like construction companies in summer or retailers during the holidays—can benefit from filing an extension. It allows them to prioritize core business activities during peak times and focus on taxes during slower periods.

The Cons of Filing a Business Tax Extension

While extensions seem like a useful tool, they can bring a few challenges as well.

1. No Payment Extension

Filing for an extension does not delay your tax payment deadline. You’ll need to accurately estimate and pay what you owe by the original due date.

• Potential Risk: Underpaying your taxes will result in penalties and interest. Overpaying can tie up cash that your business might need for operational costs.

2. Delayed Refunds

If your business is owed a tax refund, filing an extension means you’ll have to wait longer to receive your money. For some small businesses, this delay in cash flow could hinder short-term plans.

3. Complex State Requirements

If your business operates across multiple states, you’ll need to handle each state’s extension policies. Some states automatically accept IRS extensions, while others require separate filings. This can add an extra layer of paperwork and compliance management.

4. Added Administrative Work

While you gain more time to prepare, it may shift stress and workload onto future deadlines. Are your systems and team prepared to handle the delayed tax filing without disruption?

How Filing an Extension Works

Filing for a business tax extension is a straightforward process when done correctly. Here’s how to go about it in 2025:

1. Determine Your Filing Form

• Use Form 7004 for multi-member LLCs, partnerships, S-Corps, and C-Corps.
• Use Form 4868 for sole proprietorships and single-member LLCs.

2. Estimate Your Tax Bill

You need to calculate your estimated taxes owed for the year. Submit this amount by the original filing deadline to avoid penalties or interest.

3. File Electronically

File your extension online via the IRS e-file system. Electronic submissions are faster and more reliable compared to mailing.

4. Mark New Deadlines

The two key extended deadlines to keep in mind for 2025 are:

• September 15, 2025: Final deadline for partnerships and S-Corps.
• October 15, 2025: Final deadline for C-Corps, sole proprietors, and individuals.

Weighing the Decision

When considering whether to file an extension, ask yourself the following questions:

• Are you missing important documents or key financial information?
• Does your business experience seasonal peaks that conflict with tax deadlines?
• Is your accounting team equipped to handle the workload, or do you need more time?
• Will your estimated tax payments cause cash flow challenges?

How to Prepare Financially

If tax payments are a concern, financing options like ARF Financial’s Bankroll Revolving Line of Credit can help small businesses cover their tax obligations while preserving cash flow. With flexible terms and quick access to funds, tools like the Principal Pause Button can provide businesses with the breathing room they need.

Learn more about ARF’s financial solutions here.

Making Tax Season Less Stressful

Filing a business tax extension in 2025 can be a valuable tool—if used correctly. It allows for better planning, reduces rushed mistakes, and fits into your business’s seasonal rhythms.

However, keep in mind the trade-offs, like potential penalties, delayed refunds, or added administrative complexities. By carefully assessing your business’s unique circumstances, you can decide if this option aligns with your goals.

Still unsure about the best decision? Consider reaching out to a tax professional for expert guidance to ensure compliance and maximize tax savings.