By Daniel Sabet, Senior Tax Manager at GreenGrowth CPAs
March 18, 2026 | 8-minute read
Did you ever wonder why you received penalties after your CPA filed an extension for you?
That penalty was most likely due to not making the appropriate estimated payments throughout the year—and not paying the total by the extension deadline.
You have two days until the extension deadline for partnerships and S corporations (March 15th). You have about a month until the deadline for individuals and C corporations (April 15th).
And if you think filing an extension buys you six months to figure out what you owe, I’m about to save you anywhere from $8,000 to $40,000 in penalties and interest.
I’m Daniel Sabet, Senior Tax Manager at GreenGrowth CPAs. Over the past year, I’ve reviewed tax situations for more than 200 cannabis businesses across California, New York, New Jersey, Minnesota, and Delaware. The single most common mistake I see? Operators who believe an extension to file is an extension to pay.
It’s not.
Let me break down exactly how extension deadlines actually work, what you’re required to pay even if you file an extension, and the three calculations you need to run in the next 48 hours to avoid penalties.
What an Extension Actually Means (And What It Doesn’t)
When your CPA files an extension for you, here’s what that extension does: it gives you six more months to file your tax return. That’s it.
If your partnership or S corp deadline is March 15th, the extension moves your filing deadline to September 15th. If your C corp or individual deadline is April 15th, the extension moves it to October 15th.
But here’s what the extension does NOT do: it does not give you more time to pay what you owe.
The IRS still expects you to pay your estimated tax liability by the original deadline. If you don’t, you’re going to get hit with two things: underpayment penalties and interest charges.
Let me give you a real example from one of our clients.
The Oklahoma C Corp: A Case Study in Getting It Right
I worked with a C corporation in Oklahoma. Cannabis manufacturer. They had $600,000 in taxable income in 2024. At the federal corporate rate of 21%, they owed $126,000 to the IRS for 2024.
Throughout 2025, they were supposed to make quarterly estimated payments. Four payments. Each one equal to roughly one-quarter of that $126,000 if they were using the safe harbor provision.
In 2025, their taxable income jumped to $800,000. That means their total federal tax for 2025 was $168,000.
They had already made estimated payments totaling $126,000 throughout the year. So they only needed to pay the difference by April 15th, 2026 to avoid penalties. That difference? $42,000.
They filed an extension. Totally fine. But they still had to cut a check for $42,000 by the extension deadline.
If they didn’t, the IRS would charge them penalties on that $42,000, even though they filed the extension on time.
This is the disconnect. The extension buys you time to finalize your return. It does not buy you time to come up with the cash.
The $14,300 Mistake: What Happens When You Get This Wrong
Let me tell you what happens when you misunderstand the extension deadline.
I had a partnership come to us last year. Two cannabis retail locations in Northern California. They filed an extension in March 2025. Their CPA told them they had until September to file. They thought they had until September to pay.
They didn’t make any estimated payments throughout the year. They figured they’d settle up in September when they filed the return.
September comes. We’re brought in to clean up the books and finalize the return. Their total tax liability for 2024? $187,000. They hadn’t paid a dollar of it.
The IRS hit them with underpayment penalties for not making quarterly estimated payments. They got hit with interest on the full $187,000 from April 15th through September.
By the time we calculated everything, the penalties and interest added up to $14,300.
Fourteen thousand dollars they didn’t have to pay. All because they misunderstood what the extension deadline meant.
And here’s the worst part: they didn’t have $187,000 sitting in the bank in September. They’d been operating all year thinking they had more cash than they actually did.
So now they’re scrambling to come up with almost $200,000 in a single month. It crushed their cash flow for Q4. They had to delay a planned expansion. They had to cut staff hours.
All of this was avoidable with proper estimated tax payments.
How Estimated Payments Actually Work
The IRS has something called the safe harbor provision. It’s a set of rules that, if you follow them, you won’t get penalized for underpayment.
Here’s how it works.
For most businesses, the safe harbor rule says you need to pay at least 100% of your prior year’s tax liability in estimated payments throughout the current year.
So if you owed $100,000 in federal taxes for 2024, you need to make estimated payments totaling at least $100,000 for 2025.
Those estimated tax payments are due quarterly:
- April 15th
- June 15th
- September 15th
- January 15th of the following year
If your income is higher in 2025 than it was in 2024, you’ll owe more when you file. But as long as you paid in 100% of the prior year’s liability, you won’t get hit with underpayment penalties.
The Cash Flow Problem with Safe Harbor
Now, here’s where it gets tricky for cannabis businesses.
Let’s say you had a huge year in 2024. You owed $300,000 in federal taxes. But in 2025, your revenue dropped. Maybe a new competitor opened down the street. Maybe you’re dealing with pricing compression. Whatever the reason, you’re on track to owe only $180,000 for 2025.
If you make estimated payments based on 100% of your 2024 liability, you’re going to overpay by $120,000. That’s $120,000 sitting with the IRS instead of in your bank account. That’s working capital you can’t use for inventory, payroll, or expansion.
This is where you need to talk to your CPA.
You can make estimated payments based on 90% of your current year’s projected liability instead of 100% of the prior year. But you have to get the projection right. If you underpay, you’re back to penalties and interest.
The Brooklyn S Corp: Optimizing Estimated Payments
I worked with an S corporation in New York. Two dispensaries in Brooklyn. In 2024, they had $1.2 million in taxable income. After all the passthrough calculations, the owners owed about $450,000 in combined federal and state taxes.
In 2025, they opened a third location. Revenue went up, but so did expenses. By mid-year, we could see their taxable income was going to land around $1.5 million.
We calculated their projected tax liability for 2025: roughly $560,000.
The safe harbor would’ve required them to pay $450,000 in estimated payments throughout the year, based on 2024. But we knew they were going to owe $560,000. So we adjusted their estimated payments to cover 90% of the projected current-year liability.
That meant they paid about $504,000 in estimated payments throughout the year.
When they filed in March 2026, they only owed an additional $56,000. No penalties. No interest. And they didn’t tie up an extra $110,000 with the IRS all year.
This is the kind of planning that saves six figures.
What You Need to Do Before the Extension Deadline
You’re reading this on March 13th. You have two days until the partnership and S corp extension deadline. Here’s what you need to do right now.
Step 1: Calculate What You Actually Owe
Pull up your 2024 tax return. Look at your total tax liability. That’s your baseline.
Now look at your 2025 financials. If your income is similar to 2024, your tax liability is probably similar. If your income went up or down significantly, you need to adjust.
If you don’t have clean financials for 2025 yet, use your 2024 liability as your estimate. It’s not perfect, but it’s better than guessing low.
Step 2: Add Up What You’ve Already Paid
Go through your bank statements. How much did you pay in estimated tax payments throughout 2025?
You should have made four payments: April 2025, June 2025, September 2025, and January 2026.
If you missed payments, that’s a problem. But we’ll deal with that in a minute.
Add up everything you’ve paid so far. Subtract that from your estimated total liability. Whatever’s left is what you owe by the extension deadline.
Step 3: Pay the Difference by the Deadline
If you owe $80,000 and you’ve paid $60,000 in estimates, you need to send the IRS $20,000 by March 15th or April 15th, depending on your entity type.
You can pay online through IRS Direct Pay or EFTPS. You can pay by check. You can have your CPA submit the payment when they file the extension.
But it has to be paid by the extension deadline.
If you can’t pay the full amount, pay as much as you can. The penalty and interest are calculated on the unpaid balance, so every dollar you pay reduces what you’ll owe in penalties.
What If You Didn’t Make Estimated Payments All Year?
This is where a lot of operators are right now. You didn’t pay quarterly. You’re looking at a massive bill due in two days.
Here’s what you do:
- Pay as much as you can by the deadline. Even if it’s 50% of what you owe, pay it. It reduces the penalty base.
- File the extension on time. Don’t miss the filing deadline on top of the payment issue.
- Set up a payment plan with the IRS. They have installment agreement options. You’ll still pay interest, but it’s better than ignoring it.
- For next year, get on a quarterly payment schedule immediately. This cannot happen again.
I’ve seen operators try to catch up after missing a year of estimated tax payments. It’s brutal. You’re essentially paying two years of taxes in one year while trying to keep the business running.
Don’t let it get to that point.
How to Avoid This Next Year
Let’s talk about how to make sure you never have this problem again.
Meet with Your CPA at Least Quarterly
Not once a year in March when you’re scrambling to file. Quarterly.
In those meetings, you should be reviewing your financials, updating your tax projections, and calculating your next estimated tax payment.
Your CPA should be telling you exactly how much to pay and when to pay it. If your CPA isn’t doing this, you need a new CPA.
Set Aside Cash Every Month for Taxes
Don’t wait until the quarterly deadline to figure out if you have the cash.
Take your projected annual tax liability, divide it by 12, and transfer that amount into a separate tax savings account every single month.
When the quarterly payment is due, the money is already there.
For cannabis businesses, I usually recommend setting aside 25% to 30% of your net profit every month. That covers federal, state, and local taxes in most jurisdictions.
It sounds like a lot. But it’s money you owe anyway. You’re just moving it into a separate account so you’re not tempted to spend it.
Understand the Safe Harbor Rules
If your income is volatile year to year, you need to know whether you should base your estimated payments on prior year liability or current year projection.
This is a conversation to have with your CPA in January, not in March.
Run the numbers both ways. Figure out which approach minimizes your penalties without tying up too much cash.
Track Your Payments
Keep a simple spreadsheet. Four rows: Q1, Q2, Q3, Q4. Two columns: amount due, amount paid.
Update it every time you make a payment.
This takes 30 seconds and it ensures you never miss a payment.
I’ve had clients miss a quarterly payment simply because they forgot. They thought they’d paid it. They hadn’t. It cost them $6,000 in penalties.
Don’t let that be you.
The Bottom Line on Extension Deadlines
Penalties and interest are a silent profit killer. Fourteen thousand dollars in penalties is 14,000 reasons to get this right.
The operators who build sustainable, profitable businesses are the ones who treat tax planning like operational planning. It’s not something you deal with once a year. It’s something you manage every quarter.
You have two days until the partnership and S corp extension deadline. You have about a month until the C corp and individual deadline.
If you haven’t calculated what you owe, do it today. If you haven’t made estimated tax payments, pay what you can by the extension deadline and set up a plan to catch up.
And if you’re not sure what you owe or how to calculate it, reach out to your CPA today. Not next week. Today.
This is one of those situations where two days of focused work can save you five figures in penalties.
Make it happen.
Need help calculating your estimated tax payments or understanding your extension deadline obligations? Schedule a consultation with our team. We specialize in cannabis tax strategy and have helped 200+ operators across CA, NY, NJ, MN, and DE avoid costly penalties.
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws and regulations are complex and subject to change. Consult with a qualified CPA or tax professional regarding your specific situation before making any tax-related decisions.
