One of the most common challenges for taxpayers during the first tax season (running from February 15 through April 15) is a too-common delay in getting Schedule K-1 forms. Since April 15 comes around every year, why do we receive these vital forms later and later each year?
The delay causes stress for taxpayers who want to file by April 15, and there are a number of taxpayers who have to fight to get their K-1s in time for filing even with extensions running to October 15. And what should you do while you’re waiting for K-1s?
What is a K-1 Form and What are the Deadlines?
Schedule K-1 is a federal tax form used for reporting the income, losses, and dividends to an entity’s partners or shareholders. K-1s are usually issued by pass-through entities that don’t pay corporate tax on their income but shift tax liabilities to their stakeholders.
Most K-1 forms are due to taxpayers by March 15. This is often not enough time for tax preparers to incorporate K-1 data into clients’ tax returns by April 15. This delay is often accentuated when clients don’t transfer the schedules to their CPA immediately.
The timing is tight to begin with. We then have to contend with K-1s that aren’t done by April 15, or even much later, for a variety of reasons.
Reasons for Delay
To start, a K-1 cannot be issued until the entity completes its tax return. And tax laws, partnerships, S-Corps, and investment structures continue to increase in complexity. To deal with this complexity and volume, completing K-1s can be a manual, time-consuming process. Any bump in the road in creating them creates a daisy chain of delays.
For instance, if K-1s are late for a partnership that’s waiting to complete its tax accounting, that affects the partnership’s ability to send timely K-1s to its members. Other reasons K-1s might be delayed include:
- If extensions are requested by a partnership, S-Corp, or investment vehicle, the K-1s will most likely be delayed until the tax accounting is complete.
- Some organizations are simply not prepared to complete and send K-1s on time. For instance, do they have all the partner’s proper and current information to be able to send out the K-1s? A simple matter, but still a common issue.
- Physical K-1s could be affected by postal delays, especially if they’re sent during extreme weather.
Tips for Getting Ahead of K-1 Form Delays
There are some things taxpayers can do to speed up the receipt of K-1s, or at least reduce the impact of K1 delays:
- Ask the partnerships or S-Corps their expected time frame for sending the K-1s. Ask for expedited tax information. If you’re told the K-1s are going to be late, immediately file for an extension.
- Encourage the use of electronic delivery, which can speed up delivery of K-1s and allow you to more efficiently relay K-1 data to your tax professional.
- Make sure your investment entities have your most current contact information to remove one more reason for delay off the table.
Mitigating K-1 Form Delays: Strategies for Taxpayers
K-1 form delays are common and can cause stress for taxpayers. To minimize the impact of K-1 form delays caused by tax law complexities, lack of preparation, and postal issues, taxpayers can request an expected time frame, utilize electronic delivery, and ensure updated mailing information. Our team of experts is here to help ensure that you receive your K-1 forms on time and can accurately report your income, losses, and dividends to the IRS. Contact us today to find out how we can help.
