Are you a Business Owner or Filing Taxes on Behalf of a Corporation or Partnership? Read on!
Next up in our That Time of Year blog series, is an important tax deadline for business owners that’s less than two weeks out! Filing on behalf of a corporation or partnership? Listen up, or it could cost you.
The deadline for filing Federal income tax returns for 2019 S-corporations and partnerships is March 15th. Not sure this fast-approaching deadline is feasible? Not a problem! S-corps and partnerships can use IRS Form 7004 (Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns) to extend the deadline to file business tax returns by six months, to September 15th. Just be sure to keep in mind, those wanting to file for this extension must do so by the March 15th deadline to avoid any late fees or penalties. Like we previously mentioned, these fees could cost you, as late penalties can reach as high as 25%!
With these deadlines looming, it is extremely important to know whether or not they may apply to you and your business entity. As such, let’s clarify a few points:
What is an S-corporation?
The IRS designates S-corporations as pass-through entities. Meaning, they are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. There is no federal income tax levied at the corporate level. Rather, S-corporation’s profit is allocated to its shareholder(s) and taxed at their individual income tax rates. By having shareholders of S-corporations report the flow-through of income and losses on their personal tax returns, S-corporations avoid double taxation on the corporate income. That said, S-corporations are responsible for tax on certain built-in gains and passive income at the entity level. For further information on what requirements a corporation must meet to qualify for S-corporation status, please visit the IRS website here.
What is a partnership?
As defined by the IRS, a partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each partner includes his or her share of the partnership’s income or loss on his or her tax return. In this way, partnerships are similar to S-corporations in that they are both counted as pass-through entities. For further information on partnership qualifications, please visit the IRS website here.
We hope this has served as a helpful reminder to mark your calendars! If you would like to discuss the information we’ve provided in further detail, please feel free to reach out to us at Maddox Thomson & Associates. We are happy to provide tax guidance or support. Next up in our That Time of Year blog series, we’ll bring an important deadline and tax consideration for those who are working towards retirement. Stay tuned!