Filing your taxes can be an arduous endeavor, especially for a business owner. With Tax Day upon us, you may find yourself, at best, worrying if you’ve taken all the proper deductions on your tax return or, at worst, scrambling at the last minute to meet the deadline.
In fact, some business owners who haven’t yet filed their business tax returns may have already missed their deadline. That’s because not every business has the same April 15 deadline for filing tax returns. While the IRS typically requires sole proprietors, partnerships, limited liability companies, and S corporations to use the calendar year, these entities can receive the flexibility to choose their own fiscal calendar, like C corporations, if they make a request to the IRS demonstrating a legitimate business reason. If you run a seasonal business, like a ski resort or summer rental, choosing an off-calendar fiscal year may be the right choice so that you can accurately depict your business’s annual performance.
It is prudent to work with a tax professional to plan and strategize early to save you and your business a lot of hassles and headaches come tax season. If you haven’t already, here are some things you should consider.
Your Legal Entity Will Determine Your Tax Return Deadline.
Hopefully, when you initially selected your business entity, a lawyer guided you through the tax implications of each entity. Choosing the right entity not only affects how much you pay, but also when that payment must be made. If you can’t meet the deadlines outlined below, you should talk to your tax advisor about filing an extension.
C corporations must file and pay tax returns at the business entity level (as opposed to at the individual owner level), but the deadline may vary according to the C corporation’s fiscal year. There is a formula: the deadline is the 15th day of the third month following the end of a C corporation’s designated fiscal year. For C corporations that follow the calendar year, the tax return deadline is always March 15. However, if a corporation’s fiscal year end is June 30, then the filing deadline is September 15.
S corporations have received special tax status from the IRS, which provides a pass-through tax structure that taxes income only once: in the hands of the shareholders. One of the limitations of a “pass-through” entity, however, is the restriction on choosing your own fiscal calendar. Unless an S corporation provides a business reason for unique fiscal calendar, the IRS requires S corporations to follow the calendar year. Therefore, following the same formula as C corporations - the 15th day of the third month following the end of the fiscal year- the tax filing deadline for most S corporations is March 15.
Sole Proprietorships and Single-Member LLCs
For both sole proprietorships and single member LLCs, the tax return deadline is the same as the deadline for individuals: April 15. The income and expenses of these entities are not reported on a separate tax return. There is a specific Schedule C that is included in the individual owner’s tax return to report the business entity’s tax income or losses.
Partnerships and Multi-Member LLCs
A partnership must file an annual information return (Form 1065) to report the income and losses from its operations. This must be filed on the 15th day of the fourth month following the end of its fiscal year, or April 15 if the partnership follows the calendar year, but a partnership does not pay income tax at the entity level. Instead, as a pass-through entity, the activity of the partnership is allocated to and reported by each partner on his or her individual tax return.
Multi-member LLCs are treated like partnerships, and are afforded pass-through tax treatment. Therefore, the LLC must file a Form 1065 and members must also file a Schedule K-1 to report the income or losses of the LLC with their individual tax returns.
Read More About the Pros and Cons of Each Entity Type: Startup for What?! Legal Entities for New Businesses
Filing For an Extension
If you aren’t prepared to file all your necessary paperwork for a complete and accurate return by midnight on April 15 (or other applicable deadline), you still have options. The worst thing you could do is nothing. If you fail to file your tax return, the IRS is authorized to levy a failure-to-file penalty, which equals 5% of your unpaid taxes for each month you’re late or up to 25% of your total bill. Instead, you should talk to your tax advisor about filing for an extension. It is important to note that filing for an extension is a request for an extension of time to file your tax return ONLY – meaning you still are required to calculate the amount of tax due as of the original filing date and make a payment. If you do not remit payment on time, you will be subject to late payment penalties, which can accumulate quickly and often rival the actual amount of tax due if left unaddressed in a timely manner. At the very least, you can use a tax estimator to roughly determine what you owe and make a good faith payment.
Talk To A Lawyer
The federal tax code is a voluminous and constantly evolving text that should not be taken lightly. When planned for properly, you can take advantage of credits and incentives built into the tax code that favor businesses and investments. However, staying on top of the code and regulations often requires the advice and counsel of a professional. A Priori lawyer can work with you to minimize your tax liability and exposure.
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