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Hey there, fellow real estate investors, FIRE enthusiasts, and tax aficionados! Welcome to "Real Estate is Taxing" – your go-to weekly podcast for all things real estate taxes, hosted by Natalie Kolodij, EA- Real Estate Tax Strategist and dry humor extraordinaire.
Each week, we're breaking down complex tax topics into bite-sized, understandable explanations, with no regard for how many obscure references it takes to get there.
Speaker: Welcome to Real Estate is Taxing,
where we talk about all things real estate
tax, and break down complex concepts into
understandable, entertaining tax topics.
My name is Natalie Kalady, I'm
your host, and I am so excited
that you've decided to join me.
Microphone (Shure MV7)-5: Hello.
Hello everyone.
And welcome to today's show.
So we are only a few days away from the
extended deadline for entity tax returns.
So this is the filing deadline for
anything that is a pass through,
typically our partnerships and our escorts
Microphone (Shure MV7)-6: And this
deadline is normally September 15th.
It's September 15th for our entities,
October 15th for our personal return.
But because this month,
the 15th is on a weekend.
Our deadline for entities
is going to technically be
September 16th for this year.
Microphone (Shure MV7)-5:
So for today's show.
We are going to talk about this
tax deadline, who it applies to
and some common misconceptions.
And what your options are.
If you think you might miss this deadline.
As a starting point to kick
things off the September 15th
or technically 16th deadline.
Is the extended filing deadline
for S corpse and partnerships.
These are normally due on March 15th.
So if you file for an extension that gave
you an additional six months to file.
It does not give you an
additional six months to pay.
So the same thing happens
with your personal return.
If you filed an extension for your 10 40.
Then you have until October
15th to complete your 10
40 or personal tax return.
However your income taxes do.
Should be paid by April 15th extension.
Give us more time to file.
They do not necessarily
give us more time to pay.
Before we move on.
Let's do a quick recap on what's an
S-corp and what is a partnership?
Because there are a lot of people who do
not realize they might have one of these.
An S corporation.
Is either a C Corp that elects to
be taxed as an S Corp or an LLC that
elects to be taxed as an S-corp.
For either of these circumstances, you
file form 25 53 to be taxed as such.
Even if you're starting as an LLC.
You don't have to file
anything else first.
Do you change your LLC?
To a corporation and then to
have it taxed as an S status,
it all happens in one step.
and that is what it takes.
The other common return that is going
to be due in a few days is partnerships.
There are multiple ways.
You can create a partnership, the most
common being general partnerships,
a business that is just operating
with more than one person running it.
Even if there's not an entity.
And also any LLC that has more
than one person on the LLC,
it has more than one owner.
So a multi-member LLC is going to almost
always default to being a partnership.
And this is the most common way.
I see people surprised by having a
partnership or creating a partnership
when they didn't intend to.
That is because.
A lot of people set up an LLC and they
add their spouse to it by a default.
Or they're going to do, you know, one
small real estate deal with a friend.
So they do this LLC with both their
names, thinking they'll just split
it 50 50 at the end, not knowing.
They now also have to
file an entire 10 65.
They have to file a whole
partnership tax return as a result
of the way they structured this.
So these are really common situations.
So if this applies to you, don't feel bad.
It happens pretty often.
Now.
If you are a multi-member LLC.
But the only members
are you and your spouse.
You're married.
Couple.
And you are based in a
community property state.
Then you might not have
to file a partnership.
But only in that specific circumstance.
If both of those things exist, you're
married and in community property, state.
You might have the option to
treat that LLC as disregarded.
And did not have a partnership tax return.
If you are a married couple who
are operating a business together
without any type of an entity, you are
married, you're running the business.
You also have an option to file
as a qualified joint venture
where you could each choose to
file your own separate schedule.
C's each report as a separate
independent business.
Instead of reporting together on your
10 40, or having to file a partnership.
As well.
Those are a few of the nuances for times
you might not have to have a partnership.
But in most situations,
if you have an LLC.
That has an S selection, or if
you have an LLC with more than one
person, You have a tax return that
is normally due on March 15th.
And if you file an extension,
it's due six months later.
On September 15th.
But like I said in this year,
because that fell onto a weekend.
It's technically due on September 16th.
Microphone (Shure MV7)-2: Now
if you have that extension filed
or especially if you don't.
You'll want to try to get this return
filed as soon as possible, even if
you don't have money to pay right now.
So in any case, Filing a return late.
And paying late is always
worse than just paying late.
So even if you don't have money to pay any
taxes you might owe in the next few weeks.
Still make sure to get your business
returns filed by this deadline
here in the next few days for
your partnerships or your escorts.
And get your 10 40 filed
by the October 15th.
Extended deadline.
Even if you end up paying later,
you don't want to file late.
If you can avoid it.
But we'll know, sometimes
these things are unavoidable.
Sometimes you may not have
realized you had a partnership.
Or you forgot to file an extension
or your books aren't ready.
They're all kinds of reasons that
entity returns end up filed late.
And there might be a few solutions
depending on your circumstances.
The first solution is if you
have a partnership, this does
not work for S corporations.
But if you have a partnership tax
return, And you meet the requirements.
Under rev proc 84 35, which is
the small partnership exception.
Then as long as you have all of the
information correctly reported on
your personal tax return, your 10 40.
Following some criteria.
We're going to talk about.
Then using this rev proc you can request
to have that late penalty forgiven.
So again, if you have a partnership,
not an S-corp rev proc 84 35.
What this allows is basically if
there was a reasonable cause for
having this late partnership.
If you meet these criteria,
there's a good chance.
You can have the penalty removed.
If you contact the IRS,
either send them a letter.
Or call up and talk to them.
They won't do it automatically.
Microphone (Shure MV7)-4: Okay.
So let's dive into the requirements to
see if you can get that penalty removed.
Under these criteria.
The first one is your partnership.
Can't have more than 10 partners.
Has to be a small partnership.
The second one is that the partner
has to either be, they have
to either be all individuals.
Or the estate of a deceased partner.
So if you have a partner who is
a trust or an LLC or something
else, Will not qualify.
The third one is that each partner's
share of income deductions and credits.
Our aliquot allocated
in the same proportion.
As all other items of income,
deduction and credits.
So things have to be.
Allocated to each person correctly.
And each partner has to have reported.
Their share of the partnership,
income or loss on their timely
filed income tax return.
This is what I was saying, and
this is why it's important to
get this returned on quickly.
Even if it's late at this
point, if you can get it done.
Before you file your personal return,
that if it's extended, isn't due
for another month, you have till
October 15th to file your 10 40.
If you can complete this
partnership in time.
So that the K one, which reports your
share of partnership, income or losses is
included on your personal return and you
pay the tax on your share accordingly.
Then you would qualify
for this penalty relief.
So even if right now you're
having a little bit of an oh shit
moment and realizing you have
a late partnership tax return.
And you're sitting there and calculating
this $235 a month per person penalty.
If you can get it together
in the next, like 25 days.
And get it done and finished
up and get those K ones.
And your share of income and your partner
shares of income onto their personal
returns that are filed on time before
their extended October 15th due date.
Then you can qualify for this rev
proc 84, 35, as long as you meet
the other criteria we talked about.
Again, this doesn't
apply to S corporations.
And whether or not.
The state will also allow a
forgiveness is going to vary by state.
Some states might carry over.
Some might not.
It is also important to note that
there are some tax return elections.
That require being on a
timely filed tax return.
So even if you get that return
finished up and you're going to
avoid that late filing penalty now.
There might be certain tax return
elections that you might want to
make, but might not be able to
now because the return is late.
So just make sure you check that and
discuss it with your tax professional.
The next option that might be worth
looking into, if you think you might
have a late file tax return or we're
coming up on this deadline in a few
days and you know, you are not ready.
Is that this year there
were quite a few disasters.
And if you are located or
your business is located.
In one of these areas that were
deemed a formal area of a disaster,
then you might have your deadline
bumped out to February 3rd.
This applied to quite a few
circumstances this year.
And again, I will note, so
this extends any deadlines.
That occurred after the disaster.
It doesn't apply to.
Your taxes owed and a
lot of these situations.
Because for example, Your personal
income taxes are due by April 15th.
Because filing an extension gives you an
extension of time to file, not to pay.
So if your personal return is due
in the next 30 days, but you're
in one of these disaster areas.
Then you're filing.
You might have more time for that.
Could be, do.
February 3rd.
However your payment.
Is still late, either way.
So if you have a partnership.
Or an S-corp tax return that are
going to be doing a few days.
But, you know, you are in an
area that might have had a
qualified disaster this year.
Then you might have that deadline
pushed out to February 3rd.
Under this disaster relief.
So there is a full list of
qualifying events, disasters,
what states, counties, et cetera.
Fell under it.
And the specifics on the filing
due dates and what was impacted.
On the IRS website and I have the
link to that in the show notes.
So go to the show notes to get that
full link to the disaster relief list.
And see if your circumstance
is listed there.
Just a few days ago.
There was a release for Connecticut that
had to do with some of the flooding,
severe storms and landslides where various
deadlines were bumped out to February 3rd.
A couple of days before that we had
another posting related to New York,
same thing, severe storms and flooding
bumped some deadlines out to February 3rd.
We had several counties in North Carolina
and I believe all of South Carolina.
Was extended due to the hurricane impact
that we had there a couple months ago.
And it goes all the way back to
some additional situations that
were a little earlier in the year,
including some areas of Texas from a
hurricane there, some Kentucky from
some mudslides, there was Georgia
was impacted from hurricane Debbie.
So lots of different areas
where you may be covered to
have your due date bumped out.
Now.
I will add the caveat that a lot
of people will say that if you and
your business are based there, or
if your tax preparer is based there.
So the idea being, if you live in like
Seattle, But your tax professional
is in South Carolina in one of those
disaster zones where businesses
and people were bumped out to.
February 3rd, that because that's, who
does your taxes that yours aren't due till
that date and this isn't clearly stated.
So the nuance to it is that it's
somewhat based on the ability and
who and where your business records
are kept allowing the filing.
So if that professional has all of
your records, like you mailed them
all of your documents or they do all
of your bulk bookkeeping and they
are who receive all of your bills and
do all of your invoicing, et cetera.
Then you have a good argument.
However, if you have just uploaded
PDFs to a portal and you could
just as easily upload them to
another tax professionals portal.
It might not qualify.
So I wouldn't fall a hundred percent
on that being a saving grace.
But if you or your business is based
in one of these impacted disaster
zones, Then you might have a bumped out
filing deadline into early next year.
So it's worth checking out.
Again, check the show notes to
get that link to the IRS website
for the full list of locations.
The last small item, I'll mention
that's not specifically due
to the filing or filing late.
But just something that
some people don't realize.
And I find this catches quite a few
of my clients off guard each year.
So when it comes to an
S-corp or a partnership.
The entity itself typically does
not pay tax in most situations.
So the amount of income
or loss is calculated and
figured out on those returns.
And then each of the partners or
shareholders receive a K one that gives
them their portion of income or loss.
Which they report on their
personal tax return on your 10 40.
And that's where the taxes are paid.
It all nets out on the 10 40.
So even though at the end of T level
for an S Corp or a partnership,
there's typically not income tax paid.
Depending on your state.
You very well might have franchise
tax due each year when you file this.
For example, in North
Carolina, where I am.
There is a $200 minimum for
escorts for the first million
dollars, pretty much of income.
So the majority of S Corp owners
here still have to send in a $200
check each year to the state.
As a franchise tax.
Even though.
The S-corp itself, isn't paying any
kind of income tax based on the exact
amount of earnings or anything like that.
even if you have one of these pass
through entities, Just confirm and
see if you do have a state fee that
is also due to make sure you're
not missing that each year as well.
If there is a franchise tax for
your state, or there might be
an annual filing requirement.
Or something else outside of your
standard income tax return filing.
So that is what I have for you guys.
I wanted to keep it short
and sweet for this show.
I know a lot of tax professionals
listen, and that you guys are
going to be super busy this week.
If you have questions, feel free
to hop into the Facebook groups.
I'll link them below in the show notes.
And as always, I hope that you guys
have found value from today's episode.
Don't forget to check out the
list for disaster areas to see
if that buys you some extra time.
And if you have a partnership that
is going to be late, don't forget
to check out rev proc 84 35 and
see if you qualify to receive some
relief from that late filing penalty.
I hope you guys have a fantastic
September 16th filing deadline.
And as always, I will
talk to you next week.
Mhm.