4 Ways to Keep Your Partnership Tax Compliant

One of the most important aspects of running any business, but especially a partnership, is making sure you remain tax compliant.  Tax compliance refers to meeting all the tax filing and other reporting requirements timely and completely.  If you are operating a partnership, this article will be a great quick read for getting acquainted with your tax responsibilities and knowing what talks you’ll need to have with your Certified Public Accountant.

 1. File your tax return on time

Partnership returns are generally due by the 15th day of the 3rd month following the date its tax year ended.  For most partnerships with partners who must file using a calendar year, this due date is March 15th.  There are hefty late filing penalties when this deadline is not met.  It is highly recommended that you request a tax extension if you don’t think you’ll be ready by this date.  The extension will provide six additional months to file.  However, if this extended filing due date is not met, late filing penalties will be assessed from the March 15th date.  The current late filing penalty for partnerships is $210 per month/per partner, not to exceed twelve months.  So, if you are two months late and there are three partners in your partnership, the total late filing penalty that would be assessed is $1,260 ($210 x 3 x 2).

2. Keep good records

Performing bookkeeping on a regular basis throughout the year greatly helps in meeting important deadlines.  Good record-keeping also ensures you are filing a complete and most accurate tax return which is important because the IRS can assess a penalty for incomplete filings as well.

3. Create a partnership agreement that aligns with your partnership’s taxing structure

The partnership agreement is an important tool that the IRS uses to help understand your partnership’s intentions when it comes to certain tax laws.  Therefore, you should work with your CPA or tax professional, as well as your attorney, to ensure your partnership agreement clearly outlines how the partners will share in the income and expenses of the partnership, how the overall cost basis of each partner’s interest will be calculated, the reimbursement policy for ordinary and necessary expenses incurred by partners, and more.

4. Understand your tax filing requirements

Not all partnerships are responsible for filing a Form 1065.  For instance, there are special rules for a husband and wife only partnership that, if eligible, allows you to file your partnership’s income and expenses on a married filing joint tax return.  Additionally, there are circumstances where you could be under the impression that you don’t truly have a partnership and therefore not file a required tax return which could mean big tax problems for you.  Partnerships are complex and require an expert CPA or tax advisor who understands partnership taxation that you can work with to receive the necessary guidance for staying tax compliant and avoiding costly mistakes.

If you found this article helpful, allow us to invite you to check out a few of our other blog articles:

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