1) Due Date of Filing 2016 U.S. Corporate and Partnership Tax Returns:
The most significant changes for tax year 2016 for U.S. companies, LLCs, and partnerships relates to their respective due dates. The 2016 U.S. corporation tax return (Form 1120) is now due by April 18, 2017, and if put on extension, due October 16, 2017. The 2016 Partnership tax return (Form 1065) and Form 1120S is now due by March 15, 2017, and if put on extension, due September 15, 2017. We will automatically file the request for extension for all our clients that will not be filing by the initial due date.
The extension provides additional time to file the tax return but not for the payment of tax due. Any tax due by corporations needs to be paid by April 18th.
Business operations in multiple states may require additional state filing requirements. If your corporation or partnership expanded its operations into different or new states in 2016 or if you are planning on operating in different states during 2017, please let us know.
2) Estimated Tax Payments for Corporations:
Corporations with taxable profits are required to make estimated payments. The required (minimum) annual payment is the lesser of the following 2 amounts:
Current year tax liability - 100% of the tax that will be reported on the current tax return.
Prior-year safe harbor - 100% of the tax reported on the prior year tax return.
Failure to make estimated payments will result in interest and penalties being assessed. If your corporation expects to owe taxes in 2017, we recommend making quarterly estimated tax payments to the IRS during this upcoming tax year.
Note: The IRS requires corporations to make all tax payments through electronic funds transfer, normally done using the Electronic Federal Tax Payment System (EFTPS). If you are not yet enrolled with EFTPS, please contact the tax preparer from our office who is handling your tax return to do so.
3) Sec. 1446 Tax Withholding for LLC companies and Partnerships:
US Partnerships and LLC companies that are taxed as partnerships (Form 1065) are required to withhold tax from foreign partners. Partnerships (foreign or domestic) and LLC companies that are taxed as partnerships that have income effectively connected with a U.S. trade or business must make quarterly withholding tax payments on the income that is allocable to their foreign partners. The withholding tax rate for non-corporate foreign partners is 39.6% for business income and 20% for capital gains. The withholding tax rate for corporate foreign partners is 35%.
If your LLC or partnership had taxable income in 2016 or expected to have taxable income in 2017 please be in touch with us in order to arrange for the tax withholding payments.
4) Payments to Domestic (U.S.) Contractors - Form 1099-MISC:
U.S. corporations, companies and partnerships must file Form 1099-MISC for payments of at least $600 made to U.S. independent contractors (i.e., non-employees) for the following: professional services rendered, commissions paid, rents, and royalties. Form 1099-MISC recipients include U.S. individuals, partnerships and LLCs. Form 1099-MISC is not required for payments made to corporations.
For tax year 2016, you are required to furnish Form 1099-MISC to each independent contractor by January 31, 2017. In addition, U.S. corporations must file with the IRS Form 1096, along with Copy A of each Form 1099-MISC; these forms are due by March 31, 2017 if filing electronically. A penalty of up to $250 per form can be assessed if the forms are filed late. Several states also require copies of Form 1099-MISC.
If you haven’t already done so, you should request your contractors and other payment recipients to send to you a completed Form W-9, Request for Tax Identification Number. Form W-9 will provide you with the recipient’s legal name, address and taxpayer identification number, and LLC tax status (if applicable). All of this information is needed to prepare Form 1099-MISC. You may obtain copies of Form W-9 at http://www.irs.gov/pub/irs-pdf/fw9.pdf
There are several companies that offer online Form 1099-MISC filing services for a fee. Filing Form 1099-MISC online is a simple process - simply login and follow basic data input instructions for each payee - name, address social security number (or EIN) and amount paid. The online filing links are:
Please note that we have no connection or any affiliation with these companies.
5) Payments to Foreign (non-U.S.) Contractors - Form 1042-S:
U.S. corporations, LLC companies and partnerships that engage the services of foreign (non-U.S.) independent contractors are required to withhold and remit U.S. income tax on payments made to such foreign persons. The payments and associated backup withholding are reported on Form 1042-S.
Amounts subject to Form 1042-S reporting include the following:
Interest paid to a nonresident alien individual
Rent and royalty payments
Compensation for personal services performed in the U.S.
Dividends paid by US corporations to foreign shareholders.
For tax year 2016, it is required to furnish Form 1042-S to each foreign independent contractor by March 15, 2017. In addition, The U.S. payers must file with the IRS Form 1042 and Form 1042-T; these forms are due by March 15, 2017. Late penalties can be assessed if the forms are filed late.
6) Foreign Bank and Financial Account Reporting - FinCEN (FBAR):
Foreign Bank and Financial Account Reporting (FBAR) must be filed annually by any U.S. entity that has a financial interest or signature authority over foreign financial accounts. For this purpose, “financial interest” includes the following types of accounts:
Direct ownership by a U.S. entity of any foreign financial account.
A foreign financial account owned by a partnership in which a U.S. entity owns more than 50% of the partnership’s profits.
A foreign financial account owned by a corporation in which a U.S. entity owns more than 50% of the shares and/or value of the corporation.
The FBAR report is required to be filed if the aggregate value of foreign financial accounts exceeds $10,000 during the tax year.
For tax year 2016, the FBAR filing deadline is April 15, 2017 with a maximum extension for a 6-month period ending on October 15.
7) Form 5471 - Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Form 8865 - Return of U.S. Persons with Respect to Certain Foreign Partnerships:
Form 5471 is filed by U.S. entities who are shareholders in foreign corporations. Form 8865 is filed by U.S. entities who are partners in foreign partnerships. There is a $10,000 penalty for form 5471 or form 8865 late filing. Please contact our office if you require additional details regarding this reporting requirement or have any questions concerning your potential requirement to file this form.
8) Patient Protection & Affordable Care Act (Known as “ObamaCare”):
The Patient Protection and Affordable Care Act (commonly referred to as “ObamaCare”), was signed into law in 2010. The goal of the Act is to give more Americans access to affordable, quality health insurance.
One of the key provisions of this law is that, starting in 2015, U.S. businesses that employ 100 or more full-time employees must offer health insurance to their employees who work more than 30 hours per week. Starting in 2016, U.S. businesses that employ 50-99 full time employees must offer health insurance to their employees. Failure to offer health insurance to these employees will result in the company having to pay a tax penalty of at least $2,000 per non-covered employee. Consequently, many employers are concerned that their health care costs will rise as a result of the ObamaCare legislation. This requirement has previously been delayed by the Obama administration and future changes and amendments are certainly possible. The totality of ObamaCare might be repealed altogether with a new administration and Congress. We will continue to monitor any developments and changes in the law and how they apply to U.S. businesses.
9) Our Compliance review services help reduce exposure to penalties and tax assessments:
In addition to the regular tax preparation services, we provide our clients with compliance review services in various taxation areas. These services are designed to minimize exposure to audits, penalties, tax assessments and to help ensure that your US subsidiary is fully tax compliant. Our services include periodical review and examinations of important taxation areas such as sales and use tax obligations, payroll, labor law requirements, tax requirements for multi state operations and more.
Ehud Kisch CPA (U.S./Isr)
Partner, US Tax Compliance Dept.
BDO Ziv Haft
For 2016 Tax Filings - Important Reminders for US Citizens Living Abroad Click here