Posted by Jorge Guerrero, CPA
Back on July 31, President Obama signed new legislation that adds a more logical flow to the tax filing deadlines. The new law will take effect for tax years beginning after 12/31/15 (2016 returns filed during the 2017 filing season). The purpose of this change is to allow taxpayers and tax professionals more time to accurately complete and timely file individual tax returns. Since the due date for Form 1040 will remain April 15 with extensions due October 15, the changes will go unnoticed for most individuals. On the other hand, the changes will have a major effect on partnerships (Form 1065) which produce K-1s and calendar year corporations that file Form 1120.
The change that will affect individuals directly involves the due date of Form FinCen 114 “Report of Foreign Bank and Financial Accounts.” Taxpayers who own or have signing authority over bank and/or investment accounts outside the United States currently must file this annual declaration to the IRS by June 30 (no extension needed). The new law coincides with individual return due date of April 15 and permits a six-month extension to October 15.
Currently, partnership returns are due 3 ½ months after their year-end and have the ability to extend filing 5 months. Under the new law, their deadlines to file will move up to 2 1/2 months, but can apply for a 6-month extension to file. This means the due date for calendar year partnership will move to March 15 from April 15 however; the deadline for extensions will remain unchanged at September 15. The change will be beneficial to those who typically file for an extension due to waiting for their K-1s, as they will now receive them sooner.
C-Corporations will receive the most benefit from the new law. Form 1120 is currently due 2 ½ months after the company’s year-end and have the ability to file for a 6-month extension. with one exception, the new law gives C-Corporations fliers an extra month to file. For example, the deadline for calendar year C corporation taxpayers will move to April 15 with extended returns still due September 15. They will receive an extra month, 6 months instead of 5, to file extended returns starting with the 2027 filing season. Under a special rule in the new law, C corporations who use a fiscal year ending on June 30th will have to wait until year-end June 30, 2026 to receive the benefit of filing 3 ½ months after their year-end (extended returns due 6 months later). Subchapter S corporations filing Form 1120S will not see a change since they issue K-1s.
Estate Tax Returns
Many of the other law changes will only affect when extended returns are due. This includes estates and trusts who file Form 1041 as they will receive an extra 15 days to file an extended return. Currently the due date is April 15 with extensions due September 15. The new law moves the extension due date to September 30.
Tax Exempt Organizations
Tax Exempt organizations will still have to file Form 990 five and one-half months after their year-end. The new law does not move this deadline but they will benefit by not having to file for one of two possible 90-day extensions. Under the new law, all exempt organizations can file for just one six-month extension. For example,
May 15 remains the due date for calendar year organizations with the ability to extend filing returns to August 15 and then again to November 15.
These changes should help make the tax filing season more efficient, but the big question is whether or not states will adjust their due dates to follow the federal rules.