Extensions for individual or business returns are relatively simple to complete, but they are becoming more and more important. If you filed your return already, you can probably stop reading this. For those who have not completed a return, I would consider an extension and keep reading…
An extension is an extension of time to file a return. It is not an extension of time to pay your tax. I repeat; it is not an extension of time to pay your tax liability. For pass-through entities like S Corps or Partnerships, a federal extension doesn’t require any payment because generally those entities do not incur a tax liability. There may be liabilities on the various state returns the pass-through files.
The penalties for failure to timely file K-1s on pass-through entities have skyrocketed in the past few years. I can remember when the penalty was $0, then $50, then $100. Now it’s basically $200 per K-1 per month that it is late. If you file that return in June without an extension for your family partnership, they are going to get you for 3 months times the number of partners times the $200.
In the past, the Internal Revenue Service has been somewhat lenient about abating late filing penalties if the underlying individual returns were timely filed and reported all the tax liability. Those days are pretty much gone and the IRS is denying more requests for penalty abatement. Now they are looking to collect revenue and enforce these rules which have been around a few years now.
The extension forms are one page long; one piece of paper. If, for whatever reason, you are unable to file on time, be sure that you have an extension filed. Even if you can’t pay the tax and you know you will incur late payment penalties, it’s still better to avoid late filing penalties by filing the extension.
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