Pass-through entities—sole proprietorships, partnerships, S-corps, and LLCs—can benefit from an automatic six-month extension, but only if you handle estimated taxes, Form 8995 QBI worksheets, and timing properly. This 2025 guide shows how to use extensions to your advantage and preserve the 20 % Qualified Business Income (QBI) deduction.
Introduction
The 20 % QBI deduction under IRC §199A can be a large tax benefit for pass-through owners, but estimating income and deductions accurately is crucial when filing an extension. Overestimating reduces cash flow; underestimating risks underpayment penalties and QBI phase-outs. Learn how to file Form 4868 or 7004, calculate QBI on extensions, and lock in maximum deduction.
Relevant IRC Codes & Definitions
- IRC §199A – Provides a deduction up to 20 % of qualified business income, subject to income, W-2 wages, and unadjusted basis in qualified property tests.
- IRC §6072 & §6081 – Set return due dates and grant extensions.
- IRC §6654/6655 – Governs estimated-tax penalties for individuals and corporations.
- Treas. Reg. §1.199A-1 – Details the calculation and limitations of QBI, including the impact of taxable income and W-2 wages.
IRS & State Form References
| Entity Type | Extension Form | Key QBI Form | Original Due Date | Extended Date |
|---|---|---|---|---|
| Sole Proprietor (Schedule C) | Form 4868 | Worksheet 1 (Form 1040) | Apr 15, 2025 | Oct 15, 2025 |
| Partnership (1065) | Form 7004 1b | Form 8995 (attach to 1040) | Mar 15, 2025 | Sep 15, 2025 |
| S Corporation (1120-S) | Form 7004 1a | Flow-through to 8995 | Mar 15, 2025 | Sep 15, 2025 |
| Multi-member LLC | 7004/4868 based on classification | As above | As above | As above |
Most states follow federal extension rules, but verify state-specific QBI conformity.
Real-World Example
Case Study: GreenLeaf Partners, a multi-member LLC taxed as a partnership, expects $500,000 of QBI and $200,000 of W-2 wages for 2025.
- Mar 15: They file Form 7004; pay 90 % of estimated tax to avoid penalties.
- By Sep 15: Final K-1s issue showing $520,000 QBI and actual W-2 wages of $220,000.
- Adjustment: Form 8995 recalculated with higher QBI and W-2 wages, boosting deduction by $4,000 compared to preliminary estimate.
Step-by-Step Guide
- Estimate QBI & W-2 Wages by March 1 (or April 1 for individuals).
- Calculate Tentative QBI Deduction using Form 8995 worksheets.
- File Extension:
- Form 4868 for individuals (attach estimated tax).
- Form 7004 for partnerships/S-corps (Line 1a/1b).
- Pay Estimated Tax (≥90 % for individuals; ≥100 % for corps) by original due date to avoid underpayment penalty.
- Monitor Year-End Results: track actual QBI, W-2 wages, and UBIA of qualified property.
- Prepare Final Form 8995 with actual figures.
- File Return by Extended Date:
- Attach Form 8995 and any revised 8995-A if needed.
- Pay Balance Due with extended return.
- Reconcile Over/Underpayment to adjust estimated payments next year.
- Review State QBI Conformity and file any state worksheets.
Conclusion
A six-month extension can give you runway to finalize QBI, W-2 wages, and asset bases—maximizing your 20 % deduction without penalty. Key is accurate estimation, timely payment, and recalculation on the extended return.
Call to Action
Need help projecting QBI, filing extensions, and maximizing your Form 8995 deduction?
Book a QBI extension strategy session with Anshul Goyal, CPA. We’ll model your QBI, file your extension, and ensure you claim every dollar of deduction.
Disclaimer
This guide is for educational purposes only and does not constitute legal, tax, or financial advice. QBI calculations and extension procedures are complex and fact-dependent. Always consult a qualified CPA before estimating QBI, filing extensions, or claiming deductions.
Anshul Goyal, CPA EA FCA is a U.S.-licensed CPA, IRS Enrolled Agent, and Chartered Accountant (India). He specializes in extension planning, QBI deduction optimization, and compliance for pass-through entities.
FAQs (Top 5 High-Searched)
1. Can I adjust QBI estimates after filing an extension?
Yes—recalculate and attach Form 8995 with actual figures when you file the extended return.
2. Do estimated-tax payments affect QBI?
Only indirectly; they prevent penalties that could offset QBI savings.
3. Does state QBI follow federal?
Most do, but some limit or disallow the deduction—check state instructions.
4. What if my QBI changes significantly?
File amended return or attach revised Form 8995-A if the difference exceeds 10 %.
5. Are extension payments deductible?
Payments aren’t deductible, but penalties and interest may be as business expenses under IRC §162.
About Our CPA
Anshul Goyal, CPA EA FCA has maximized QBI deductions for 500+ pass-through entities, saving clients tens of millions and ensuring flawless extension filings.