New for 2017, the IRS has swapped the due dates for Partnership tax returns and C Corporation tax returns. This is a move that makes sense, but if you aren’t paying attention, you could get caught off-guard and wind up facing some hefty penalties if you file late under the new rules.
Who Does this Affect?
Partnerships and LLCs with more than one member that use Form 1065 to report their income and expenses to the IRS will be subject to a new, earlier due date for their tax returns.
What’s Changing?
Starting in 2017, the new due date for Partnership tax returns filed on Form 1065 is March 15th. Under the previous rules, you had until April 15th to file your partnership returns, same as your individual taxes.
The new due date for C Corporation returns is April 15th. Previously, C Corporations had to file their tax returns by March 15th.
What’s Not Changing?
S Corporations get to keep the same deadline for their tax returns (March 15th).
Why Are They Making the Changes?
Presumably, the earlier deadline for partnership tax returns will cut down on the number of extensions filed by individuals who happen to have an interest in a partnership or multi-member LLC.
With the previous April 15th deadline, it was all-too-common for individuals to be stressed out wondering if their partnership or LLC K-1s would arrive in time to calculate how much tax they owed at the April 15th deadline.
If the business ended up filing an extension, the partners often found themselves in the awkward position of having to pay taxes without having the information they needed from the K-1 to determine what those taxes amounted to.
Under the new due dates, all the pass-through entity tax returns will be due on March 15th, which gives the partners at least one month before their individual taxes are due to figure out how much tax they owe on their share of the business.
If the partnership return gets extended, the individuals are still left guessing at how much tax to pay in April, but at least this way they’ll have more warning.
In the long run, I think this will be a good move. In the short run, you’ll want to pay attention and make sure your partnership returns get filed (or extended) by the March 15th due date so you don’t get whacked with penalties.
How Big are the Penalties?
For partnership tax returns, their are 2 penalties to worry about:
- Failure to File- $195 penalty, per partner, per month (or partial month) that the return is late.
- Failure to Furnish Information Timely- $260 for each Schedule K-1 that isn’t furnished to a partner by the due date.
Even if you have the smallest possible partnership (2 partners), and you file and furnish late this year, you could be facing penalties of at least $910:
2 partners x $195 x 1 month = Failure to File Penalty of $390
2 K-1s x $260 = Failure to Furnish Penalty of $520
For partnerships with more than 2 partners, the penalties add up even quicker.
So, don’t forget about the new deadline, and make sure that you file your partnership tax return (or extension) by March 15th this year!
If you’re looking for a CPA to prepare the tax returns for your small business, I am currently accepting new clients.
You can learn more about what we do, and what type of client we can help by clicking this link.
-Josh
