March 15 Is The Tax Deadline For S-Corp And Partnership Extensions And Elections

March 15 Is Tax Deadline For S-Corp And Partnership Extensions And Elections

March 15, 2017, is the deadline for filing 2016 S-Corp and partnership tax returns, or extensions, 2017 S-Corp elections, and 2017 Section 475 elections. Don’t miss any of these tax filings or elections; it could cost you.

2016 S-Corp and partnership tax extensions
Extensions are easy to prepare and e-file for S-Corps and partnerships since they pass through income to the owner, usually an individual. Pass-through entities are tax-filers, but not taxpayers. 2016 individual and calendar-year C-Corp tax returns or extensions with taxes owed are due April 18, 2017.

Some states have S-Corp franchise taxes, excise taxes, or minimum taxes, and payments are usually due with the extensions by March 15. (See A Few States Tax S-Corps: Traders Can Reduce It.) LLCs filing as a partnership may have minimum taxes or annual reports due with the extension by March 15.

The IRS changed the due date for partnerships: 2016 partnership tax returns or extensions are due March 15, 2017, the same due date as S-Corps. Last year, partnership tax returns were due April 18, 2016, the same due date as individuals. 2017 S-Corp and partnership extensions give six additional months to e-file a tax return, by Sep. 15, 2017.

The IRS late filing penalty regime for S-Corps and partnerships is similar. The IRS assesses $195 per owner, per month, for a maximum of 12 months. Taxpayers may request penalty abatement based on reasonable cause. Ignoring the extension deadline is not reasonable cause. States assess penalties and interest, often based on payments due.

2017 S-Corp elections
Traders qualifying for trader tax status and interested in employee benefit plan deductions, including health insurance and retirement plan deductions, probably need an S-Corp. They should consider a 2017 S-Corp election for an existing trading entity, due by March 15, 2017, or form a new entity and file an S-Corp election within 75 days of inception. Most states accept the federal S-Corp election, but a few states do not; they require a separate S-Corp election filing by March 15. If you overlooked filing a 2016 S-Corp election by March 15, 2016, and intended to elect S-Corp tax treatment as of that date, you may qualify for IRS relief. (See Late Election Relief.) (You are welcome to discuss an S-Corp election with Robert A. Green, CPA in a paid consultation.)

2017 Section 475 MTM elections for S-Corps and partnerships
Traders qualifying for trader tax status may elect Section 475 ordinary gain or loss treatment. Section 475 trades are exempt from wash sale loss adjustments on securities and the $3,000 capital loss limitation. I refer to Section 475 as “tax loss insurance” since it leads to quick tax refund checks. I recommend Section 475 for securities, but not Section 1256 contracts, to retain lower 60/40 capital gains rates in Section 1256. Section 475 does not apply to segregated investment positions. Section 475 MTM ordinary income does not use up capital loss carryovers.

“Existing taxpayers” including S-Corps and partnerships that file a 2016 tax return may attach a 2017 Section 475 MTM election statement to their 2016 federal entity tax return or extension, due by March 15, 2017. The second step is to file a 2017 Form 3115 (Application for Change in Accounting Method) with the 2017 entity tax return filing in 2018.

If a trading S-Corp or partnership has significant trading losses on securities and or Section 1256 contracts for the year-to-date period in 2017, it may be a good idea to elect Section 475 for ordinary loss treatment. If a trader wants to revoke a 2016 Section 475 election, a revocation election statement is due by March 15, 2017. (See New IRS Rules Allow Free And Easy Section 475 Revocation.)

Tax compliance services
Green, Neuschwander & Manning LLC offers tax compliance services to traders, which include tax preparation and tax planning. If you haven’t signed up yet for our entity and individual service, do so immediately, so we can prepare your extensions and consider the above elections on time. Alternatively, discuss the above matters with Robert A. Green, CPA in a paid consultation.

Darren Neuschwander CPA contributed to this blog post.