If you have a business entity or a trust, you’ve probably encountered Schedule K-1 before. A K1 form declares income or losses from certain entities, including partnerships, S corporations, estates, and trusts. This document, while essential, can complicate the timing of filing your return and the calculation of your tax obligation. Filing on time is essential, so our tax experts put this post together to answer the frequently asked question, when are K1s due?
What is a Schedule K1?
A Schedule K-1 is a U.S. tax form used to report pass-through income from various entities to the shareholders, partners, or beneficiaries. A K-1 breaks out the entity’s income and activities into its various components, like ordinary business income, interest income, capital gains & losses, etc. The form shows the shareholder’s, partner’s, or beneficiary’s portion of the activity from the entity.
Certain entities, particularly S-corps, must include Schedule K-1 in their tax return, It gets filed with the IRS, and you must report any income or losses on your individual return.
Who Needs to File a K1?
Entities like partnerships, C-corps, estates, or trusts file K-1s with their required tax filings. After it’s finalized, the Schedule K-1 also goes to individual partners, shareholders, and beneficiaries to inform them of their allocable share of income, deductions, and credits.
These individuals must include the Schedule K-1 in their tax return, and pay any applicable taxes on the income.
When Are K1s Due?
Entities typically file Schedule K-1 with their annual return, so K1 due dates typically coincide with tax returns. However, the deadline varies depending on the type of entity filing the return.
- For partnerships, the deadline is March 15th for calendar year taxpayers. If the partnership operates on a fiscal year, the return comes due on the 15th day of the third month following the close of the fiscal year.
- For S-corps, the deadline is also March 15th for calendar year taxpayers. Similar to partnerships, if the S corporation operates on a fiscal year, the return comes due on the 15th day of the third month following the close of the fiscal year.
- For estates and trusts, the returns and associated K-1s are due April 15th for calendar year taxpayers. For estates and trusts that operate on a fiscal year, the deadline comes the 15th day of the fourth month following the close of the fiscal year.
There were significant deadline changes in the tax year 2016. Prior to that, partnerships had a deadline of April 15th, which was changed to March 15th. C-corps had a deadline of March 15th, which was changed to April 15th (though that’s not directly related to Schedule K-1).
Penalties for Late Filing
Late filing of tax returns or forms that include Schedule K-1 can result in financial penalties. These penalties can impact entities as well as individual partners, shareholders, or beneficiaries.
For partnerships, the penalty is generally $210 (as of 2022) for each month or part of a month the failure continues, multiplied by the total number of partners in the partnership during any part of the partnership’s tax year for which the return is due..
For S-corps, the penalty is the same as that for partnerships: $210 (as of 2022) for each month or part of a month the failure continues, multiplied by the total number of shareholders in the S-corp during any part of the corporation’s tax year for which the return is due.
If an estate or trust fails to file on time or fails to report all income, it can be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. If the return is over 60 days late, there’s a minimum penalty of $435 (as of 2022) or the balance of the tax due on the return, whichever is smaller.
Extensions: How to Buy More Time
Filing for an extension can provide taxpayers with additional time to submit their tax returns without incurring late-filing penalties. Note that an extension of time to file your return does not extend the time to pay your taxes. The taxes are still due by the original due date of the return.
Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” is used by businesses that need more time to file their tax returns. The extension must be filed on or before the due date of the original tax return to be valid.
Handling Inaccuracies
If you discover inaccuracies in your Schedule K-1, don’t panic. However, you should be aware that these errors could directly impact your individual tax obligations.
If you suspect an error or don’t understand certain elements of the K-1 you received, the first step is to contact the partnership, S corporation, estate, or trust that issued the Schedule K-1. They can provide clarification or issue a corrected K-1 if necessary.
If you’ve already filed your individual tax return using the inaccurate K-1 information, you might need to amend your tax return using Form 1040-X, “Amended U.S. Individual Income Tax Return.” This form allows you to make corrections to your originally filed return.
Preparing amended returns is complicated, especially when they include a K-1. Consult with a tax professional to ensure your amended returns are prepared properly.
What to Do If You Haven’t Received Your K-1
If you haven’t received your Schedule K-1 by the time you’re preparing your personal taxes, it can be a stressful situation, as this form provides essential information for your tax return.
Reach out to the partnership, S corporation, estate, or trust responsible for issuing the Schedule K-1. They might provide an update on the status or a reason for the delay. Sometimes, they have a valid reason, and you have nothing to worry about.
If you believe the K-1 will arrive after the personal tax deadline, consider filing for an extension using Form 4868, “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.” This will give you up to six additional months to file.
Calculate the estimated amount of income that will be included on the K-1. If you have taxes due on your return, you should make an extension payment when you file your extension. This will minimize the potential penalties and interest associated with late payments.
Closing Thoughts
Adherence to the K-1 deadlines is essential, not only to prevent penalties for the entities, but also to ensure individuals can integrate this information into their personal tax returns. The details on the K-1, which encompass varied income types and deductions, can be complex and potentially overwhelming.
Most people who receive K-1s should consult a tax professional to assist with tax preparation. Tax Hack specializes in corporate tax strategies for businesses of all sizes. Our veteran tax pros can save your company thousands on their annual tax bill. Get started now with a complimentary one-on-one strategy session, and see how much you can save.