It's April 10. Three of your four K-1s are in. The fourth, from the deal that extends every year, will show up in September. You have two choices, and one of them feels more responsible than it is.
Filing now feels responsible. You're done, the return is in, and you can fix it later. Extending feels like putting something off. In practice it's the other way around for most investors, and the reason is that both options make you guess the same number in April. Only one of them makes you file the guess.
Should I file an extension or file and amend while I wait on a K-1?
For most LPs, extend. File Form 4868 by April 15, pay an estimate of what you'll owe, and file once the last K-1 arrives. Filing on a guess and amending later means paying for two returns, usually in every state as well, and it rarely saves money unless you need a filed return now.
Both options are legal. Both end with a correct return. The difference is how many returns you pay for, how many agencies see a number that later changes, and how much of your tax you're guessing at in April.
What does an extension actually do?
It gives you until October 15 to file, and nothing more. An extension doesn't move the payment deadline: tax you owe is still due April 15, and anything unpaid after that accrues interest. So the real work of an extension is the estimate, not the form. The form takes five minutes.
Form 4868 is automatic. You don't give a reason and nobody approves it. What the IRS requires is a proper estimate of your tax for the year, and it expects payment of whatever that estimate says you still owe.
Two penalties are in play, and they're very different sizes. The failure-to-file penalty is the big one, 5% of the unpaid tax for each month or part of a month the return is late, up to 25%, and a valid extension takes it off the table until October 15. The failure-to-pay penalty is smaller, half a percent a month or part of a month, and an extension doesn't stop it. But if, by April 15, you pay at least 90% of the tax your return will show, and you pay the rest when you file by the extended date, the IRS treats the shortfall as having reasonable cause and the failure-to-pay penalty doesn't apply. Interest still does.
Plain English: an extension turns a September K-1 into an October filing date. It doesn't turn April into October for your money.
How do you estimate a K-1 you haven't seen? Start with last year's K-1 from the same deal. Adjust for anything you know changed: a sale, a refinance, a big capital project. Then ask the sponsor for a projection, because many sponsors can give a range by March even when the final numbers aren't done. And if the deal is throwing off passive losses you can't use yet, the late K-1 may not change your federal tax at all this year, which makes the estimate easy. (If you're not sure whether yours can, see whether K-1 losses can offset W-2 income.)
When does filing and amending make sense?
Rarely, and usually for reasons outside the tax itself: you need a filed return for a mortgage or financial aid application, or you're owed a sizable refund that doesn't depend on the missing K-1. If you do file first, treat the amendment as certain and budget for it, federal and state, from the start.
Filing first gets you a filed return and, if you're owed one, a refund months earlier. What it costs:
- A second return, several times over. An amended federal return on Form 1040-X, plus an amended return in every state you filed in. Each one is billed work.
- A return that disagrees with the partnership. Your return is supposed to report partnership items the way the partnership's own return does. File on an estimate and yours won't match until you amend. A mismatch the IRS finds before you fix it tends to arrive as a letter.
- A ripple through the rest of the return. If the late K-1 changes your income, it can change other calculations that depend on your total income, and the state returns that pick up the federal numbers.
- Interest if you guessed low. If the K-1 shows more income than you estimated, you owe the difference plus interest from April 15, the same as if you'd extended and underpaid.
If filing first is right for you, file with a conservative estimate, keep the workpapers that show how you got it, and schedule the amendment for the week the K-1 lands.
Can I leave the late K-1 off and pick it up next year?
No. A K-1's items belong on the return for the tax year in which the partnership's year ends. Picking them up next year means both years are wrong, and a loss you'd have carried forward, or income you owed tax on, lands in the wrong place.
This one comes up more than you'd expect, usually as "it's a small K-1." Small isn't the test. The year is. If the K-1 is genuinely immaterial to your tax, that's an argument for an easy estimate on an extension, not for skipping it.
What about state returns?
Handle them the same way, but check each state's rules. Many states accept the federal extension or grant their own automatically, while others require a separate form or payment. A late K-1 from a deal in another state often means a late nonresident return there too, so the estimate and payment question repeats state by state.
This is where filing first and amending gets expensive fastest. One late K-1 from a deal in two states you don't live in can turn one amendment into four.
What does this look like for a real investor?
Take an LP with four K-1s. Three arrive by mid-March; the fourth, from a deal that extends every year, arrives September 12. Extending costs one form in April and one return in September. Filing first costs a return in April, then amended federal and state returns in September, for the same final answer.
Say that fourth deal owns property in two states the LP doesn't live in. Filing first means an original federal return, a resident state return and two nonresident returns in April, then a 1040-X, an amended resident return and two amended nonresident returns in the fall. That's eight returns to reach the answer four would have produced. The extension version is one Form 4868, whatever state extensions apply, one estimated payment in April, and four returns filed once, in September.
The estimate is the same in both cases. You still have to guess what the fourth K-1 says in April. The only question is whether you file the guess or just pay it.
That's why I extend by default for every LP client, and plan the April payment from the prior-year position before the deadline. For why the fourth K-1 is late every year, see why is my syndication K-1 late?, and for the full calendar, when are K-1s due?
An extension isn't a delay. It's a decision to file once, with the right numbers, and pay on time anyway.
This is general education, not tax advice. Extension, penalty and amendment rules depend on your facts and on each state you file in. Review your situation with your tax advisor before you decide.