If you file as a partnership or multi-member LLC, there is a new 2016 tax filing deadline. Last year, partnerships had the same tax filing date that individuals and household employers had, which was April 15th. Starting this year, Partnerships will be required to file on the same date as Corporations and S Corporations, which is one month earlier.
Partnerships need to file Form 1065 and Schedule K-1. To complete these forms, you will need a profit and loss statement that shows income, sources of revenue, and all deductible expenses of the partnership for the year. You will also need the beginning of year balance sheet. The forms require you to enter the business inception date, tax identification number, a business code, which accounting method is being used (either cash or accrual), gross receipts and the costs of goods sold. Make sure you have all this available before you meet with tax preparer.
Since partnerships are pass through entities, they do not pay taxes on profits. Instead, the business partners do. Form 1065, “U.S. Return of Partnership Income”, is used to report this income with the IRS. Schedule K-1, “Partner’s Share of Income, Deductions, Credits, etc.”, is used to report each shareholders portion of any income or loss on their personal tax return.
Limited Liability Companies (LLC) can be either single or multi-member entities. Keep in mind, only multi-member LLCs will file the Schedule K-1. Single member LLCs will file a Schedule C instead. While that may seem to be a trivial distinction, keep in mind that tax preparation firms and tax filing software will charge more to file a Schedule K-1 than they would for the Schedule C.
Arizona partnerships, due to our state’s community property laws, allow married couples working as partners to file the business as a qualified joint venture. This means that the couple can file a Schedule C rather than the Schedule K-1. Both spouses need to pass the material participation test in order to qualify for this treatment, and the rules can be found here. Filing the Schedule C will simply your tax return and could save on the expense of preparing your returns.
If you cannot complete the required forms by March 15th, a six month extension can be filed. Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns”, must be filed by the deadline. This form can be filed electronically.
Disclaimer: The information provided is not intended to be legal or tax advice. Every business situation is different, and IRS tax rules change annually. Consult with you tax and legal advisors before making any business decisions. Phoenician Financial Planning, LLC offers tax planning consultation services.