Another March 15th has come and gone: the original due date of 2010 corporate tax returns, and we are rapidly approaching the due date for individual and partnership returns, so we thought that a discussion of retirement plan funding deadlines is timely. One of the more attractive aspects about sponsoring a retirement plan (including a SEP or SIMPLE) is that businesses can take a tax deduction on the company’s tax return for a plan contribution even if it isn’t made by the end of the year for which the return is filed. The Internal Revenue Code allows you to deduct an accrued contribution for the year even if you are otherwise a cash basis taxpayer! The only requirement for the deduction is that the contribution must be paid in full by the due date of the company’s tax return, including extensions. The ability to extend the due date of the employer return by filing for an extension is a very valuable tax and financial planning tool. It provides the company up to six additional months to come up with the cash for the contribution, while still preserving the tax deduction on the prior year’s return. However, it is critical that the company’s accountant confirms the plan contribution with MMG prior to completion of the return! If this communication does not occur, then the accuracy of the return is placed at risk. It is common for extensions to be filed to allow adequate time for careful preparation; frequently MMG has not received all the information we need from the employer to calculate the contribution by the original due date of the return. Here are some important highlights:

The deadlines (assuming the company files on a calendar year basis):

*Corporate returns (including LLCs taxed as corporations): Due date is March 15. Extended due date is September 15.
*Individual (sole proprietorship) returns (including single member LLCs): April 15 (April 18 for 2011). Extended due date is October 15 (October 17 for 2011).
*Partnership returns (including LLCs taxed as partnerships): April 15 (April 18 for 2011). Extended due date is September 15.

The myths vs. the facts:

*Filing an extension increases my risk of audit. Entirely false! As long as the appropriate taxes are paid when due, a taxpayer filing an extension is not at increased risk for an IRS examination.
*If the company’s return goes on extension, the contribution must be deposited before the return is filed. False again. In many cases, the company’s contribution has already been determined and confirmed, but the company still needs time to accumulate the funds for the contribution. As long as the extension has been properly filed, the return can be filed before the contribution is deposited (the same rule applies without an extension – you have up until the original due date to make the contribution even if the return was filed before the deadline).

What you must know:

*Plans subject to minimum funding requirements (all defined benefit plans and cash balance plans, money purchase pension plans and target benefit plans) must make their contributions by 8 1/2 months after the end of the year. Accordingly, even if a sole proprietorship has an October 15 extended due date, the contribution for any of these types of plans must be made by September 15 to avoid minimum funding penalties.

*You can always take a deduction in the year the contribution is deposited. These rules give you additional flexibility to take a deduction in the year prior to the year in which the contribution is paid.

*Even though you have until the next year to make the contribution, a qualified plan must be in existence prior to the end of the year in which you are claiming the deduction. However, a SEP can initially be established as late as the extended due date of the tax return for the year in which you take a deduction.

So while asking for an “extension” on your homework assignment in school may not have been okay, filing for an extension on your tax return does not come with the same negative implications!

About MandMarblestone Group llc

The MandMarblestone Group is one of the oldest and most trusted providers of ERISA based retirement plan solutions and services. Key to our success is the in-depth experience of our in-house ERISA attorneys who have developed and service-marked our retirement plan design encompassing an unprecedented flexibility to accommodate the changing tax, financial, operational and corporate succession planning needs of our clients. In addition to providing the full range of administrative, compliance and tax filing services, the MandMarblestone Group has also provided legal, consulting, expert witness and plan remediation services on behalf of clients with matters before the Department of Labor and the Internal Revenue Service.
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  1. Ellen says:

    Can you deduct a 2008 safe harbor contribution paid after the extended due date of the 2008 return on the 2009 return? Or is the deduction lost forever?

  2. Pam Kemp says:

    so if my client has filed a corporate extension, but files his return prior to the extended due date – he does NOT have to fund the pension contribution until the extended due date? I just want to me clear on that.

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