Partnership, S-Corp and TrustExtensions End September 16
ArticleHighlights
September 16 is the extended due date for partnership,S-corporation, and trust tax returns.
Late-filing penalty for partnerships and S-corporations is $195 times the number of partners or shareholders during any part of thetaxable year, for each month or fraction of a month.
Late-filing penalty for trust returns is 5% of the tax duefor each month, or part of a month, for which a return is not filed up to amaximum of 25% of the tax due.
If you have a calendar year 2012 partnership, S-corporation, or trust return onextension, don’t forget the extension for filing those returns ends on September 16, 2013
Pass-through entities such as Partnerships, S-corporations, and fiduciaries(trusts, estates) pass their income, deductions, credits, etc., through totheir investors, partners, or beneficiaries, who in turn report the variousitems on their individual tax returns. Partnerships file Form 1065, S-corps file Form 1120-S, and Fiduciaries file Form 1041, with each partner,shareholder, or beneficiary receiving a Schedule K-1 from the entity that showstheir share of the reportable items.
If all of the aforementioned entities could obtain an automatic extension to file their returns on the same extended date as allowed to individuals, it would be difficult for individuals to meet the filing deadline without estimating the pass-through information and then later filing an amended return when the actual data was received.
To overcome this problem, the automatic extension period for partnerships andtrusts is set at 5 months, thus providing individual taxpayers with a month’sgrace period to complete their individual 1040 returns. The original due datefor calendar year S-corporation returns was March 15, and they are allowed a 6-month extension period, making the due date for these returns also September16. Thus, individual S-corp shareholders also have a month to finish up theirindividual returns.
An S-corporation or partnership which fails to file on time is liable for amonthly penalty equal to $195 times the number of persons who were partners, orshareholders for S corps, during any part of the taxable year, for each monthor fraction of a month for which the failure continues. These penalties can besubstantial.
Trusts are subject to a penalty of 5% of the tax due for each month, or part ofa month, for which a return is not filed up to a maximum of 25% of the tax due.
If this office is waiting for some missing information to complete your pass-through return, we will need that information at least a week before theSeptember 16 due date. The late-filing penalties are substantial, so please call this office immediately if there are anticipated complications related to providing the needed information so a course of action can be determined toavoid the potential penalties.
Caring for an Elderly or Incapacitated Individual
With individuals living longer, we frequently find ourselves in the position of caregiver for elderly or incapacitated individuals. Whether you’re caring for an incapacitated or elderly spouse, an elderly parent, or even a child, understanding potential tax advantages can relieve some of the financial burden associated with being a caregiver. The following are some tax aspects of taking on the care of an elderly or incapacitated individual.
Dependency exemption - You may be able to claim the cared-for individual as your dependent, thus qualifying for an exemption deduction. To qualify:
You(1) must provide more than 50% of the individual's support costs,
The individual must either live with you or be related,
The individual must not have gross income in excess of the exemption amount ($3,900 for 2013),
The individual must not file a joint return for the year (unless neither spouse would have a tax liability if separate returns were filed and the joint return is filed only to claim a refund), and
The individual must be a U.S. citizen or a resident of the U.S., Canada, or Mexico.
(1)If the support test can only be met by a group (several children, for example,combining to support a parent), a “multiple support agreement” form can be filed to grant one of the group members the exemption, subject to certain conditions.
Medical expenses - If the cared-for individual qualifies as your dependent or medical dependent (2), you can include any medical expenses you incur for the individual along with your own when determining your medical deduction.
Amounts paid to a nursing home are fully deductible as a medical expense if the principal reason that a person stays at the nursing home is medical in nature,as opposed to custodial or other care. If a person is not in the nursing home principally to receive medical care, only the portion of the fee that is allocable to actual medical care qualifies as a deductible medical expense.However, if the individual is chronically ill(3), all of the individual’s qualified long-term care services,including maintenance or personal care services, are deductible.
(2) A medical dependent is an individual who doesn't qualify as your dependent only because of the gross income or joint return test; you can still include these medical costs with your own.
(3)A chronically ill individual is one certified by a physician or other licensed healthcare practitioner (e.g., nurse or social worker) as unable to perform,without substantial assistance, at least two activities of daily living for at least 90 days due to a loss of functional capacity, or as requiring substantial supervision for protection due to severe cognitive impairment (e.g., memoryloss or disorientation). Of course, a person with Alzheimer's diseasequalifies.
Filing status -If you aren't married, you may qualify for “head of household” status by virtue of the cared-for individual. If the cared-for individual: (a) lives in your household, (b) you pay more than half of the household costs, (c) the individual qualifies as your dependent, and (d) the individual is a relative,you can claim head of household filing status. If the person you’re caring for is your parent, he or she does not need to live with you as long as you providemore than half of your parent’s household costs and he or she qualifies as your dependent. For example, if a parent is confined to a nursing home and you paymore than half of the cost, you are considered as maintaining the principal home for your parent.
Household employee issues - If you hire individuals to help you care for an elderly or incapacitated individual in your home, you must treat them as employees, issue them a W-2 form, and withhold and remit certain payroll taxes to the IRS and your state. If you use a service company that sends its employees to provide care services, the service company will handle the payroll issue for these employees, relieving you of that responsibility. If you plan to hire help,please call this office to discuss your options in more detail.
Dependent care credit - If the cared-for individual qualifies as your dependent,lives with you, and physically or mentally cannot take care of him or herself,you may qualify for the dependent care credit for costs you incur for this individual’s care to enable you and your spouse to go to work . However, the same expense cannot be used as both a medical expense deduction and for the dependent care credit.
If you experience financial difficulties in funding the care, the tax code provides some specialized relief as described below. Generally, these forms of relief should be considered only when no other reasonable alternatives exist.
Reverse mortgage as alternative to nursing home - It is often desirable for an elderly person to remain in his or her own home with proper in-home care rather thanentering a nursing home. A reverse mortgage loan may make this a feasible alternative to a nursing home. If this approach is taken, don’t forget that household help is deductible in the same manner as nursing home expenses. In addition, household employees must be paid by payroll.
Exclusion for payments under life insurancecontracts
- Any lifetime payments received under a life insurance contract on the life of a person who is either terminally orchronically ill are excluded from gross income. A similar exclusion applies to the sale or assignment of a life insurance contract to a person who regularly buys or takes assignments of such contracts and meets other qualifying standards.
ArticleHighlights
September 16 is the extended due date for partnership,S-corporation, and trust tax returns.
Late-filing penalty for partnerships and S-corporations is $195 times the number of partners or shareholders during any part of thetaxable year, for each month or fraction of a month.
Late-filing penalty for trust returns is 5% of the tax duefor each month, or part of a month, for which a return is not filed up to amaximum of 25% of the tax due.
If you have a calendar year 2012 partnership, S-corporation, or trust return onextension, don’t forget the extension for filing those returns ends on September 16, 2013
Pass-through entities such as Partnerships, S-corporations, and fiduciaries(trusts, estates) pass their income, deductions, credits, etc., through totheir investors, partners, or beneficiaries, who in turn report the variousitems on their individual tax returns. Partnerships file Form 1065, S-corps file Form 1120-S, and Fiduciaries file Form 1041, with each partner,shareholder, or beneficiary receiving a Schedule K-1 from the entity that showstheir share of the reportable items.
If all of the aforementioned entities could obtain an automatic extension to file their returns on the same extended date as allowed to individuals, it would be difficult for individuals to meet the filing deadline without estimating the pass-through information and then later filing an amended return when the actual data was received.
To overcome this problem, the automatic extension period for partnerships andtrusts is set at 5 months, thus providing individual taxpayers with a month’sgrace period to complete their individual 1040 returns. The original due datefor calendar year S-corporation returns was March 15, and they are allowed a 6-month extension period, making the due date for these returns also September16. Thus, individual S-corp shareholders also have a month to finish up theirindividual returns.
An S-corporation or partnership which fails to file on time is liable for amonthly penalty equal to $195 times the number of persons who were partners, orshareholders for S corps, during any part of the taxable year, for each monthor fraction of a month for which the failure continues. These penalties can besubstantial.
Trusts are subject to a penalty of 5% of the tax due for each month, or part ofa month, for which a return is not filed up to a maximum of 25% of the tax due.
If this office is waiting for some missing information to complete your pass-through return, we will need that information at least a week before theSeptember 16 due date. The late-filing penalties are substantial, so please call this office immediately if there are anticipated complications related to providing the needed information so a course of action can be determined toavoid the potential penalties.
Caring for an Elderly or Incapacitated Individual
With individuals living longer, we frequently find ourselves in the position of caregiver for elderly or incapacitated individuals. Whether you’re caring for an incapacitated or elderly spouse, an elderly parent, or even a child, understanding potential tax advantages can relieve some of the financial burden associated with being a caregiver. The following are some tax aspects of taking on the care of an elderly or incapacitated individual.
Dependency exemption - You may be able to claim the cared-for individual as your dependent, thus qualifying for an exemption deduction. To qualify:
You(1) must provide more than 50% of the individual's support costs,
The individual must either live with you or be related,
The individual must not have gross income in excess of the exemption amount ($3,900 for 2013),
The individual must not file a joint return for the year (unless neither spouse would have a tax liability if separate returns were filed and the joint return is filed only to claim a refund), and
The individual must be a U.S. citizen or a resident of the U.S., Canada, or Mexico.
(1)If the support test can only be met by a group (several children, for example,combining to support a parent), a “multiple support agreement” form can be filed to grant one of the group members the exemption, subject to certain conditions.
Medical expenses - If the cared-for individual qualifies as your dependent or medical dependent (2), you can include any medical expenses you incur for the individual along with your own when determining your medical deduction.
Amounts paid to a nursing home are fully deductible as a medical expense if the principal reason that a person stays at the nursing home is medical in nature,as opposed to custodial or other care. If a person is not in the nursing home principally to receive medical care, only the portion of the fee that is allocable to actual medical care qualifies as a deductible medical expense.However, if the individual is chronically ill(3), all of the individual’s qualified long-term care services,including maintenance or personal care services, are deductible.
(2) A medical dependent is an individual who doesn't qualify as your dependent only because of the gross income or joint return test; you can still include these medical costs with your own.
(3)A chronically ill individual is one certified by a physician or other licensed healthcare practitioner (e.g., nurse or social worker) as unable to perform,without substantial assistance, at least two activities of daily living for at least 90 days due to a loss of functional capacity, or as requiring substantial supervision for protection due to severe cognitive impairment (e.g., memoryloss or disorientation). Of course, a person with Alzheimer's diseasequalifies.
Filing status -If you aren't married, you may qualify for “head of household” status by virtue of the cared-for individual. If the cared-for individual: (a) lives in your household, (b) you pay more than half of the household costs, (c) the individual qualifies as your dependent, and (d) the individual is a relative,you can claim head of household filing status. If the person you’re caring for is your parent, he or she does not need to live with you as long as you providemore than half of your parent’s household costs and he or she qualifies as your dependent. For example, if a parent is confined to a nursing home and you paymore than half of the cost, you are considered as maintaining the principal home for your parent.
Household employee issues - If you hire individuals to help you care for an elderly or incapacitated individual in your home, you must treat them as employees, issue them a W-2 form, and withhold and remit certain payroll taxes to the IRS and your state. If you use a service company that sends its employees to provide care services, the service company will handle the payroll issue for these employees, relieving you of that responsibility. If you plan to hire help,please call this office to discuss your options in more detail.
Dependent care credit - If the cared-for individual qualifies as your dependent,lives with you, and physically or mentally cannot take care of him or herself,you may qualify for the dependent care credit for costs you incur for this individual’s care to enable you and your spouse to go to work . However, the same expense cannot be used as both a medical expense deduction and for the dependent care credit.
If you experience financial difficulties in funding the care, the tax code provides some specialized relief as described below. Generally, these forms of relief should be considered only when no other reasonable alternatives exist.
Reverse mortgage as alternative to nursing home - It is often desirable for an elderly person to remain in his or her own home with proper in-home care rather thanentering a nursing home. A reverse mortgage loan may make this a feasible alternative to a nursing home. If this approach is taken, don’t forget that household help is deductible in the same manner as nursing home expenses. In addition, household employees must be paid by payroll.
Exclusion for payments under life insurancecontracts
- Any lifetime payments received under a life insurance contract on the life of a person who is either terminally orchronically ill are excluded from gross income. A similar exclusion applies to the sale or assignment of a life insurance contract to a person who regularly buys or takes assignments of such contracts and meets other qualifying standards.