Be Ready to Pay Your Taxes Earlier or It Will Cost You More You probably didn't hear about the changes in tax law affecting entrepreneurs because it looks like Congress didn't want you to.
By Cameron Keng •
Opinions expressed by Entrepreneur contributors are their own.
The due dates for Corporate, Partnership and Foreign Bank Account Reporting ("FBAR") tax returns have all changed. Congress snuck in these sweeping changes in H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 at the end of last month. Enacting a change that impacts entrepreneurs on a global scale in an law about something entirely unrelated seems disingenuous, at best.
The important changes starting after December 31,2015:
- Partnership Tax Returns ("1065 Tax Returns") are due March 15. This is a month earlier than our original due date.
- Corporate Tax Returns ("1120 Tax Returns") are due April 15. This is a month later than our original due date.
- FBAR Tax Returns ("FinCen Form 114") are due April 15. This is about two months earlier than our original due date. The FBARs are now permitted to apply for automatic six-month extensions, similar to corporate and partnership tax returns.
Related: The 5 Biggest Tax Differences Between an LLC and Corporation
Why make these changes?
The vehicle and method used to enact the change was poorly chosen, but it is likely a beneficial change to our tax laws. Originally, partnership tax returns and individual personal tax returns were due on the same date of April 15. Assuming you are in a partnership, this is an issue because your income personal tax return requires a K-1 tax form provided by the partnership tax return. Thus, the partnership tax return must be filed first.
If the partnership and personal tax returns are due on the same date, then that means that most personal tax returns must file extensions because companies usually wait till the last minute to file their taxes. This forces individuals to perpetually have to file extensions and their personal tax returns on a later date.
Corporate tax returns do not affect personal income tax returns, thus they may be permitted to be filed later without affecting other people. Any dividends or interest that is paid to an individual must be reported on a 1099 form well before the April 15 deadline. Thus, corporations may be allowed to file later without a detriment to anyone.
FBARs were always due at the end of June and the IRS did not allow extensions, thus missing this deadline was not an option. FBAR penalties are stiff and severely punishing. Having the FBARs due on the same date as our personal income tax returns makes logical sense because it allows us too simply fie everything at the same time. It lowers the risk of forgetting to file, yet another tax return. The extension provides everyone that needs additional time up to six-months.
These are positive changes, but their enactment and announcement was very obscure. I predict that we will have a swath of late tax return filers across every changed due date.
Partnerships are charged late filing penalties of $200 dollars per partner for each month filed late. The IRS will bill you for the entire month, even if it is only one day late. Corporations are charged late filing penalties of 5 percent on the amount of taxes owed or a minimum of $135 dollars if it is filed more than 60 days late. FBAR late filing penalties are stiff and depends on the amount of money left unreported. This can be up to 50 percent of the money unreported each year.
Make sure you file on-time and avoid unnecessary late penalties.
Related: When Starting a Business, Beware All the Taxes and Regulations
