Investors who own a share in partnerships or other entities that pass on their tax liability to shareholders are familiar with the annual ritual of waiting for their Schedule K-1 tax forms. These forms are necessary to complete their taxes and show investors their share of income, losses, and dividends from the business. However, these forms are often late and arrive after the March 15 deadline.
Introduction to Schedule K-1, K-2, and K-3 Tax Forms
Schedule K-1 forms are used by partnerships and other entities to pass on their tax liability to shareholders. These forms are due by March 15th or the 15th day of the third month after the date their tax year ended if they do not operate on a calendar year. The forms are important as they show investors their share of income, losses, and dividends from the business.
However, with the adoption of Schedule K-2 and K-3 forms, there is a new wrinkle this tax season. These forms segment out international items that were formerly noted on the K-1 form. The individual shareholders will receive the Schedule K-3 form. These forms were introduced last year for the 2021 tax year and are expected to be more widely used this season, which may slow down the already slow process of receiving the K-1 form.
What to do if you don’t receive your K-1 or K-3 forms on time
If you don’t receive your K-1 or K-3 forms in time, the best practice is to request an extension on your taxes. The regular tax deadline to submit 2022 tax returns is April 18. Taxpayers who file for an automatic extension have until October 16 to file their return, which will allow them an additional six months for the K-1, K-2, and K-3 forms to arrive. There are no penalties for requesting an extension, and it is considered harmless by tax experts.
It is important to remember that an extension only grants you more time to file your return, not to pay what you owe to the IRS. If you owe the IRS money, you still have to pay it by April 18 this year. If you haven’t received your partnership forms, you can contact the partnership to see if they can provide you with an estimate. If not, you can go off of last year’s form or pad the amount to be safe.
When to consider filing your return in April
While it is best to wait until you have all your information to file, there is one instance where you may consider filing your return in April before your partnership forms arrive. If you are expecting a refund that you are counting on to pay the bills, you may plan to file an amended tax return as soon as you get your K-1 forms, regardless of whether you owe any taxes on partnership income. You can now file amended returns electronically, and the IRS is contending with a backlog of paper returns.
However, if you do owe money, you will have to pay penalties and interest on the amount owed, which will be billed separately by the IRS. In this case, you will have to weigh the additional expense and hassle of filing an amended federal return, which might also trigger the need to amend your state and local returns, against the benefit of getting your refund earlier.
In conclusion, the Schedule K-1, K-2, and K-3 tax forms play an important role in determining the tax liability of shareholders of partnerships and other entities. With the introduction of the K-2 and K-3 forms, tax preparation this season may take longer. If you do not receive your forms on time, it is best to request an extension on your taxes. However, if you owe the IRS money, you will have to pay it by the April 18 deadline. If you are expecting a refund, you may consider filing your return in April and amend it later when the forms arrive. However, this will result in additional penalties and interest if you owe money. Ultimately, it is important to weigh the potential benefits and drawbacks before making a decision on filing your tax return.