Partnership tax return due

If you have a partnership tax return (also called a 1065 return) your partnership return tax is due today March 15th for a calendar year business. If you don’t know whether you are a calendar year business or not, then you are a calendar year filer, as non-calendar year filers are very rare.

Partnership returns are due for any partnership that had income of any amount in an annual period, or if you filed a partnership in a prior period, and you did not file a final return in a prior period.

As we already mentioned last week, failing to file a timely partnership tax return can be very costly. The penalty for late filing your partnership return is $205 for each month (or part of a month) late times the number of partners in the partnership with a maximum penalty period of 12 months. So, if you are a two owner partnership and file your return six months late the penalty for being late is $2,460! Quite a lot of money if you could avoid it, by simply filing on time or filing an extension. For more information about an extension please see our partnership extension post on our blog.

The IRS has more information about filing the partnership tax return form 1065 on their website www.IRS.gov. Also, if you believe you owe State taxes or local taxes (of any flavor) you can also do so online.

If you have been unfortunate enough to receive a thank you note from the IRS demanding a payment for filing your partnership tax return after the tax deadline, we can, under many circumstances ask for the penalty to be reduced or removed.

We help many other partnerships with filing partnership returns, partnership extensions and general tax compliance and advice. If you do not feel comfortable taking care of this filing, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

Partnership return due date

The days are getting longer and the feeling of winter is reluctantly melting into that feeling of spring. It must be time to file your partnership return!

If you have a partnership return (also called a 1065 return) your partnership return tax deadline is March 15th for a calendar year business.

If you don’t know whether you are a calendar year business or not, then you are a calendar year filer, as non-calendar year filers are very rare.

As we already mentioned last week, failing to file a timely partnership tax return can be very costly. The penalty for late filing your partnership return is $205 for each month (or part of a month) late times the number of partners in the partnership with a maximum penalty period of 12 months. So, if you are a two owner partnership and file your return six months late the penalty for being late is $2,460! Quite a lot of money if you could avoid it, by simply filing on time or filing an extension. For more information about an extension please see our partnership extension post on our blog.

The IRS has more information about filing the partnership return form 1065 on their website www.IRS.gov. Also, if you believe you owe State taxes or local taxes (of any flavor) you can also do so online.

If you have been unfortunate enough to receive a thank you note from the IRS demanding a payment for filing your partnership return after the tax deadline, we can, under many circumstances ask for the penalty to be reduced or removed.

We help many other partnerships with filing partnership returns, partnership extensions and general tax compliance and advice. If you do not feel comfortable taking care of this filing, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

Partnership Extension

Is it just me, or does the shortest month of the year, always feel like the longest? Maybe it is the shorter days or the bitter cold, or some combination, but I really notice a huge difference when I get to flip the calendar to March!

As you probably already know a partnership return, also called a 1065 return is due on or before March 15th for the prior year return (assuming calendar year).

But, did you know you can file an automatic 6-month partnership return extension using form 7004?

Some people ask me, why would I bother to file an extension for a business if no tax is due? The answer to that question for me is simple; it comes down to penalties. If you do not timely file your partnership return for any given year, you will be looking at a significant penalty. The penalty for late filing your partnership return is $205 for each month (or part of a month) late times the number of partners in the partnership with a maximum penalty period of 12 months. So, if you are a two owner partnership and file your return four months late the penalty for being late is $1,640! Quite a lot of money if you could avoid it, by simply filing an extension.

The IRS has more information about filing the partnership return extension form 7004 on their website www.IRS.gov. Also, if you believe you owe State taxes or local taxes (of any flavor) you can also do so online.

If you have been unfortunate enough to receive a love letter from the IRS demanding a payment for late filing a partnership return, we can, under many circumstances ask for the penalty to be reduced or removed.

We help many other partnerships with filing partnership return extensions and general tax compliance and advice. If you do not feel comfortable taking care of this filing, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

Company Car vs Mileage

Every year we get very similar questions, from a variety of different businesses.

In this post, we will cover the age old question, Company car vs Mileage

Pros – Company car

  • Write off the actual costs of the company car including
    • Actual car price
    • Any gas
    • Any maintenance
    • Any repairs
    • Any insurance
  • In many cases an individual such as an owner or employee can use the company car, and only have a small amount of compensation for the use
  • Usually only want a company car if it is very expensive initially, or is not efficient (think large truck) or both (think large truck).

Cons- Company car

  • Limited to the actual costs expended- see pros- mileage for more information
  • If you are buying a company car that has any of the following characteristics, you will probably be better taking mileage:
    • Company car costs less than $30,000
    • Company car gets better than 17 miles per gallon
    • You will own this company car longer than 3 years
    • Company car has low maintenance and repair costs
  • Still limited to depreciation method(s) available
    • Even if you pay cash now, cannot write off the price of the vehicle this year, in most cases
    • Most vehicles cannot be written off faster than five years
  • Still have to track mileage for company car (please note, this is a big deal, and most people do not anticipate this issue)
  • If you sell the vehicle at a later date, you will probably have income or loss at that time and this amount is not easy to calculate
  • Like-kind exchanges are no longer available for company cars
  • Have to worry about if business use goes below 50% for the company car (compared to personal or other use)

Pros- Mileage

  • Usually get a better write off (see explanation below)
    • Mileage is made up of many parts- see the multiple parts as issued by the IRS
      • Depreciation = $.27 Per mile
      • Gas, maintenance, etc = $.29 Per mile
      • Total mileage rate is $.56 Per mile for 2021
  • One of the few times in the tax code, where you do not have to necessarily spend money today to get a tax deduction
  • Will not have to calculate income or expense relating to selling or buying a different vehicle
  • Do not have to worry about if company vehicle use goes below 50% business use
  • Usually use mileage for less expensive and more fuel-efficient vehicles

Cons- Mileage

  • Have to track mileage (not fun)
  • May not get a better deduction if above items (under pros- company car) are higher than the mileage amount available
  • Will not be able to “write-off” personal use of the company vehicle, please note this is usually only a benefit for expensive vehicles.

General other disclosures:

  • Once you start using one method, such as the mileage method, you are usually stuck with that method for the life of that vehicle
  • Mileage may not be available in certain situations such as fleet use
  • Depreciation is a tricky subject, and we have purposely skipped it in this venue, since it would take many pages to cover all the individual considerations relating to depreciation.

We help many other individuals and businesses with depreciation issues, company car issues and general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

Unemployment Income

Many clients received new and different types of income during 2020. Even if you did not already receive unemployment income, it is something you may encounter in 2021.

Please keep in mind the following items relating to unemployment income:

  • Unemployment income will be taxed. Even any federal ‘additional’ unemployment benefits are taxed, make sure you plan ahead.
  • Unemployment income is usually not available to business owners. However, due to the pandemic, even most business owners and self-employed individuals are able to apply for unemployment income benefits.
  • Applying for unemployment benefits is not easy and wait times for applying have been increasing in recent months. If you plan to apply for unemployment, you should plan on it taking at least two- three weeks.
  • If you are working (example- part time work), you may be able to apply for unemployment income, but you will have to report your income with your unemployment agency.
  • Unemployment income is not a long term solution, if you are eligible for unemployment benefits you may be required to provide additional information such as:
    • Proof of your ability to qualify for unemployment
    • Proof that you are looking for employment
    • Proof that you did not receive additional income during this time
    • If you are a business owner, you may not be able to work as you normally would and it may prevent you from applying for other benefits such as grants or PPP loans

We help many other individuals and businesses with tax reporting, general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at [email protected]

Tax Topics- LLC Tax filing

In our quest to de-mystify certain tax topics we will cover one of the stickier tax issues. The questions come in many forms- when should I file my LLC return? What tax form to use for a new LLC? What do I need to do now that I have registered my LLC with the state? LLC return due date?

Interestingly enough the answer to this question is, it depends. Mostly, it depends upon how your business is treated by the federal government, and that dictates things like, when and what type of return your business should file.

Background- What is an LLC?

An LLC also known as a Limited Liability Company, this business type exists from a State perspective, but not from a Federal perspective. For this reason, your LLC can choose to be recognized from a Federal tax perspective in a variety of different ways. However, most of these ways require a tax election. So, we will cover the automatic treatment(s) first.

Automatic treatment of an LLC

  • If the LLC has one owner:
    • Without any other work done, your business is treated from a federal return standpoint as a disregarded entity that will file its business reporting on form Schedule C (as an attachment on the business owner’s personal return).
    • Since most LLC’s are owned by one owner, this is far and away the most common type of LLC, in fact it is most likely the most common type of business.
    • Since most LLC’s have one owner, they are surprised to find out that they do not have different filing requirements than they had before they created the LLC. They also do not have a LLC return that is due, but a separate filing due as part of their personal return.
  • If the LLC has more than one owner:
    • Again, without any other work done, your business is treated from a federal return standpoint as a partnership that needs to file form 1065 annually. Partnership returns are due on or before March 15th annually.

Elective treatments available for an LLC

  • You can choose to be taxed as an S-Corporation for a year by making a timely election (one-time election). Timely elections are most commonly made either 2 months and fifteen days after forming, or no later than 2 months and fifteen days after the 1st of the year, to be treated as such as of January 1 of the filing year.
    • S Corporation elections are made by filing form 2553
    • All owners must sign this form
    • In most cases LLC’s cannot be owners of an S Corporation
    • Once you elect S Corporation status, you are treated as an S Corporation by the federal government for filing requirements for life, or until you make a different election at a later date
  • You can choose to be taxed as an C-Corporation for a year by making a timely election (one-time election). Timely elections are most commonly made either 2 months and fifteen days after forming, or no later than 2 months and fifteen days after the 1st of the year, to be treated as such as of January 1 of the filing year.
    • C Corporation elections are made by filing form 8832
    • An owner must sign this form on behalf of all owners. But may have to show that the owner was eligible to sign on behalf of all owners.
    • Once you elect C Corporation status, you are treated as a C Corporation by the federal government for filing requirements for life, or until you make a different election at a later date

We help many other individuals and businesses with LLC filings, tax elections, general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

S Corporation Election

Background- What is an S Corporation?

Much like an LLC, an S Corporation does not exist at the State level, at the State level it is treated however it was initially formed. That is why, when you formed your business or had an attorney help you do so, they probably asked if you wanted to form a Partnership, LLC or Corporation. Once you form your Partnership, LLC or Corporation you may be able to make a special election to be treated as an S-Corporation for federal tax purposes.

Election to be treated as an S Corporation

If you have made your mind up, and want to become an S-Corporation then you will want to keep the following advice in mind:

  • You use form 2553 to make the S Corporation election.
  • A timely election is important. A timely election can be back dated in the following instances:
    • Timely elections are most commonly made either 2 months and fifteen days after forming
    • Or no later than 2 months and fifteen days after the 1st of the year, to be treated as such as of January 1 of the filing year.
  • All owners must sign this form
  • In most cases LLC’s cannot be owners of an S Corporation
  • Once you elect S Corporation status, you are treated as an S Corporation by the federal government for filing requirements for life, or until you make a different election at a later date
  • You cannot have more than 100 owners of an S Corporation in most instances, so this business type is designed for small businesses.

We help many other individuals and businesses with LLC filings, tax elections, general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

Grant Income

Many clients received new and different types of income during 2020. Even if you did not receive grant income in 2020, it is something you might want to consider in 2021.

Most for profit companies are not familiar with the grant process, but it works much like a loan application (but is usually more streamlined). Grants are most consistently offered through the SBA, or other large regional organizations such as your local chamber of commerce. In West Michigan, most grants have been offered through organizations such as The Right Place, The Grand Rapids Area Chamber of Commerce and the SBA (please note we are not affiliated with any of these organizations).

Please keep in mind the following items relating to grants /grant applications:

  • Not every grant will be design for your business. Keep looking for grants with any of the above organizations.
  • Grant income will be taxed in nearly every situation.
  • Most grants will require financial reports such as profit and loss reports, make sure you have reports ready ahead of the application, because you may only have a short time to apply for grants.
  • Even if you have been turned down for a grant in the past, that does not mean you will be turned down next time.
  •  Most grants will require that you are not already receiving a different type of benefit. For instance, you may not be able to be using PPP loan funds (in the testing period) during the period for which you apply for a grant.

We help many other individuals and businesses with tax reporting, general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

Personal property tax and Personal property tax exemption

Michigan businesses are subject to a special tax for owning property. This tax is called personal property tax. Personal property tax can be levied upon any size business, but is usually not levied until a business formally forms as a LLC, Corporation or S Corporation, or rents a business location.

Most businesses are not aware of this special tax, so it comes as a surprise when they move their business to a new location or rent space for the first time and are presented with this ‘new’ tax. It is also an easy tax to overlook as the tax deadline is kind of in the middle of the tax filing season, and it is hard to remember to file since the fact pattern of when you should file is so specific.

The good news is that most small businesses can file a one-time form and that will exempt them from having to file or pay this tax until they either:

  • Move to a different location- The exemption is location specific.
  • OR – Purchase too much equipment. Technically this exemption is only available for small businesses. The State defines a small business for personal property tax purposes as a business that has less than $80,000 of equipment owned in an annual period. They give a more specific definition of $80,000 of true cash value of equipment, but unless you want to become a tax gladiator you probably don’t want to know what that means.

If you want more information about Personal Property Tax Exemption, search: Michigan form 5076. As we mentioned above, once you file the Personal Property Tax Exemption you should not have to file this form again until you move, open a new location, or buy enough property where your property value is over $80,000.

For those businesses that are not small businesses under this definition, don’t worry there are special programs available for businesses with high equipment costs such as manufacturers.

We help many other individuals and businesses with tax reporting, general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at [email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC

PPP Loan Part 2

We already covered in Part 1 highlights of the PPP loan changes such as loan forgiveness issues, and another round of PPP loan funds available, also called the PPP2 loan program. In this posting we will cover other topics that were also included in this legislation.  Please note this is not a comprehensive list, and we may offer other updates at a later date.

  • Extension of unemployment benefits as a $300 per week supplement (effectively extending the prior unemployment benefits offered through March 14, 2021).
  • Increases deductible meals deduction to 100% (from 50%) for ordinary and necessary business meals that are purchased from a restaurant.
  • Simplifies PPP loan forgiveness application for loans of $150,000 or less. 
  • Eliminates the requirement that PPP loan borrowers deduct the EIDL advance amount from their PPP forgiveness amount.

We help many other individuals and businesses with tax reporting, general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at i[email protected]

Anthony Momany, Managing Member, Capstone CPA Group PLLC