Upcoming Business Income Tax Return Due Date Change

On July 31, 2015, President Obama signed the highway funding bill into law.  While it sounds like this law would not have any effect on you, it may potentially impact you.  We have now learned that buried into the bill there was a provision to change certain tax return due dates.  Most of the new due dates will begin with 2016 tax returns in the 2017 filing season.  The following chart summarizes the original due dates, and the new due dates per the bill.

Return Type

Current Initial and Extended Due Date

New Initial and Extended Due Date

Partnership – Form 1065 (Calendar Year) April 15

September 15

March 15

September 15

Trust and Estate – Form 1041 April 15

September 15

April 15

September 30

C Corporation – Form 1120

(Calendar Year)

March 15

September 15

Before 12/31/2025

April 15

September 15

After 12/31/2025

April 15

October 15

C Corporation – Form 1120

(6/30 Fiscal Year)

September 15

March 15

  After 12/31/2025

October 15

April 15

 

C-corporations have an interesting provision.  Through December 31, 2025, if the C-corporation is on a calendar year, then the initial due date will be April 15 and extended due date will be September 15.  After December 31, 2025, the initial due date remains April 15, but the extended due date changes to October 15.  If the C-corporation has a June 30 year-end, the new due dates will not go into effect until after December 31, 2025, with the initial due date being October 15 and the extended due date being April 15.  Once we get to 2026, all C-corporations will have an initial due date of the 15th day of the fourth month following the close of the corporation’s year end.  Also, once we get to 2026, all C-corporations will be allowed a six-month extension.

Partnership returns on a fiscal year end will have an initial due date of the 15th day of the third month following the close of the fiscal year.  The partnership return will be allowed a six month extension from the initial due date.   As reflected in the above table, calendar year partnerships will have an initial due date of March 15 and extended due date of September 15, once the law goes into effect.

Exempt organizations that file Form 990 will receive a single, automatic 6-month extension once the law goes into effect.  The initial due date for a 990 is the 15th day of the fifth month following the year-end.

S-corporations due dates did not change – the initial due date is March 15, and the extended due date remains September 15.  Once the law takes effect, partnership and S-corporations due dates will align.  One positive outcome of the change is that partnership K-1’s will initially be due one month before the personal return.  This will give tax return preparers some breathing room to receive K-1’s for personal returns, and potentially get the personal return filed before April 15.  Of course, some returns will still have to be extended, but I am looking forward to having initial partnership return due dates one month before the personal return due date.

Net Investment Income Tax (NIIT)

One of the more recent taxes we have seen enacted is the net investment income tax.  This tax took effect in 2013 to help fund the Affordable Care Act.  First of all, it is important to note that this is an additional tax.  The tax is equal to 3.8% of the lesser of:

1.)    The individual’s net investment income OR

2.)    The excess of the individual’s modified adjusted gross income over the threshold amount ($250,000 for a joint return and $200,000 for a single return).

Another important note to point out is that estates and trusts are also subject to the net investment income tax (NIIT, as we accountants call it for short).

The following items are some of the components of investment income: interest, dividends, capital gains, rental and royalty income, nonqualified annuities and passive activity income.  Rental income can be exempt from the NIIT if the taxpayer is a real estate professional and materially participates – there are certain criteria that have to be met to qualify for the exemption.  If income is exempt for regular income tax, then it is also exempt for purposes of NIIT, such as tax-exempt interest and gain from sale of principal residence.  Other exemptions include wages, unemployment income, alimony, and social security benefits.

There are some deductions that may be taken against net investment income to reduce the income subject to the NIIT.  Some of the deductions include investment interest (only the amount that was allowed as an itemized deduction), investment expenses related to the production of investment income, state and local income taxes imposed that are allocable to the net investment income, fees paid for tax preparation allocable to the investment income, and other miscellaneous itemized deductions allocable to investment income.

Please feel free to contact us if you have any questions about the net investment income tax.

IRS Telephone Scam

IRS telephone scams are very prevalent this year.  The phone call or voicemail you receive can be scary: “You owe X amount of dollars, and we need payment now” or “we are going to sue/arrest you for the money that is owed.”  If you have received or do receive this phone call in the future, first off know that everything is OK.  You are the victim of a scam.

So, what do you need to do if you have received this message?  Really, nothing.  You definitely can call your tax preparer to confirm that you are in good standing with the IRS, if you are not already sure.  You can always call your tax preparer for moral support and assurance, too.

Rest assured that this is not going to be the first method of contact from the IRS.  You will always receive a notice in the mail from the IRS if there is an issue with your tax return, or if you owe money.  In fact, you will probably receive a few notices.  If you do receive a phone call from the IRS, they will never demand that you give them bank account information, and they will not threaten to sue you.  They will discuss what the next actions on their end will be: it could be a levy of your bank account or wage garnishment.  The IRS could discuss setting up a payment plan with you.  If you do receive a phone call, do not give your social security number over the phone, ever.   They should already have this information.

For more information on the IRS telephone scam, you can check out the following article:

Phone Scams Continue to be Serious Threat, Remain on IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

Continuing Education – Value of a CPA

People often think: I am capable of preparing my tax return myself using tax software, such as TurboTax.  These people believe that they can research online whatever they need or have questions about.  All too often, people misread the tax code and IRS regulations or they search the internet until they find an answer that they want.  They think everything is good, until they get a letter from the IRS or state department of revenue stating that they are going to be audited.  The damage is done at this point, and while we as CPAs can help you organize everything and deal with revenue agents on your behalf, there are still hefty fines, penalties, and interest on what you thought was researched correctly.

So, what value can CPAs provide to you when preparing your tax return?  Most importantly, we have been to school and studied the tax regulations as part of our learning.  After we graduate school and pass the CPA exam, we are required to obtain Continuing Professional Education every year.  This keeps us up to date on all of the ever-changing tax law.  Did I mention that when you are researching online, you can definitely be misled depending on the date of the article?  This is why CPAs have to take Continuing Professional Education, so that we are up-to-date on everything.  We’ve got the knowledge, tools and resources to ensure that you are preparing your tax return correctly.

The requirements are different in every state, but in North Carolina the following Continuing Professional Education requirements must be met:

1.)    Obtain 40 hours of Continuing Professional Education every calendar year

2.)    2 of the 40 hours must be professional ethics

3.)    Keep track of all courses that were attended – you get a certificate upon completion and you also must keep any materials you received at the class

4.)    Every year, by June 30, you have to renew your license.  Part of the process is submitting all Continuing Professional Education classes that were taken.

5.)    We are expected to take classes that will contribute and enhance our professional competence.  So, if a CPA only prepares tax returns, then there would be no need for the CPA to take a class on auditing and attestation.