A bit of history for you on tax return due dates. The year was 1909 and then-President William Howard Taft and Congress led the charge to begin imposing taxes on corporate income. This first foray into taxing the income of business owners cost them 1% of the income their company made over $5,000. This would seem to be a “drop in the bucket” to most corporations and business owners today, but in 1909, I am sure that was not a popular new law! The due date for all tax returns was March 1st every year until a new law was passed in 1955 that changed the due dates of all corporate and individual income tax returns to where they would remain for the next 60 years.
If you are a business owner or partner in 2016, you know that our complex tax system has changed quite a bit in that period of time, but the tax return due dates have stayed relatively unaffected. Well, that all changed with the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 passed by Congress in July 2015. At the very end of this bill, a few paragraphs were added to address the need to change the deadlines on certain tax returns and informational forms.
Now before I specify the changes that were made, I want to focus on the reasons behind the change in tax return due dates, after all, it was really over 60 years in the making. One of the reasons for the changes is to ease the flow of tax returns and information as it is processed at the IRS Service Centers. As you will read in a minute, the tax return due dates were a little backwards and this made processing more inefficient for the IRS. The new due dates will also assist with timing differences; such as the IRS receiving a taxpayer’s individual Form 1040 before the Form W-2, reporting the employee’s wages, is even required to be submitted to the IRS by their employer.
Another important reason for the majority of changes is to benefit the taxpayer who is a partner in a business or investment activity. How many times have you been forced to wait until the last minute to file by April 15th or even had to extend your tax return because you have not yet received that elusive Partnership Form K-1 needed to complete the return? The reason for this was that Partnership tax returns were not due until April 15th, the same date you were expected to file your individual tax return. The specific laws passed last summer address this issue and more.
How will these changes in tax return due dates affect tax filing for business owners, partners, and individual taxpayers?
Now, let’s take a look at the changes that will affect the majority of business owners, partners and individual taxpayers. The law change applies to any returns for taxable years starting after December 31, 2015; which means all returns for 2016 expected to be filed in early 2017. The first change will mostly affect employers and those who pay contract workers for services. Previously, Forms W-2 and Forms 1099-MISC were required to be sent out to employees and recipients by January 31st, but were not due to the Social Security Administration or IRS until February 28th. Now the forms are due by January 31st, both to the recipient and the taxing authority.
The tax return due date for Partnership tax returns (Form 1065) will now be due on March 15th, instead of April 15th, to allow more time for those Form K-1s to be distributed to partners for use in their individual return. As well, since there are no forms distributed to individuals from a C Corporation (Form 1120), that deadline has been pushed back from March 15th to April 15th. S Corporation tax returns (Form 1120S) are still due on March 15th and were not affected. In addition, all individual tax returns (Form 1040) are still due on April 15th. Please refer to the link below for a chart outlining the various deadline changes for specific tax returns and informational forms: http://www.aicpa.org/Advocacy/Tax/TaxLegislationPolicy/DownloadableDocuments/Due-Dates-Summary-Chart.pdf.
As the IRS continues to improve and modify their tax services to respond to the changes of our time, hopefully we won’t have to wait another 60 years for adjustments. If you have any questions about how these changes will affect you or your business, please contact your tax preparer to discuss your specific situation.
Written by: Rachel Kneubuhler and Mark Fly, Price CPAs, PLLC 615-385-0686