An increasingly common tax problem at this time of year is the delay with a business partnership, S-corporation or LLC (with S-corporation election) tax return. These tax returns are typically due by March 15, giving taxpayers one month to use the data from the business tax return in their personal tax return. Increasingly, however, business tax preparers delay the filing for up to five months, making it impossible for individual partners or shareholders to file on time.
A delay in income tax return filing can be a problem when a third party needs a copy of the filed tax return. Consider these examples:
- A mortgage company needs to verify the last year’s filed tax return to issue a new loan.
- The taxpayer’s child needs to qualify for financial aid for college tuition and the financial aid office requires a copy of the tax return.
- A person on income-based repayment of a student loan needs to adjust their payment based on last year’s income.
- An SBA or USDA business loan is dependent on verification of the last year’s filed income tax return.
- An individual partner or shareholder is expecting a tax refund of taxes withheld but cannot file without the business tax return.
- An individual taxpayer wants to prepare for their cash requirements to pay last year’s taxes but cannot do this without information from the business tax return.
Delays in filing the business tax return will cause trouble in any of these cases for the partners or shareholders.
Even if you must file an extension past the usual March 15 filing deadline, it is possible to tackle and complete the filing shortly after that. Do not just file the extension and forget it. Include a completion date in the engagement agreement with the tax preparer but be realistic. Since a business tax return can take many hours over several days, it is important to plan and budget for this work. With proper preparations, the tax return can be completed promptly well before the extended filing deadline.
A video presentation of this issue is posted here.