Business tax compliance and a capstone

This final lesson does two things. First, it sets out the compliance calendar of a small business owner with an S corporation and a partnership interest: when Forms 1120-S, 1065 and 1040 are due, extensions, estimated tax, payroll and information returns, state filings, and the audit rules that apply to each kind of entity. Second, it assembles Brandt Aerial LLC's 2027 results and the Brandts' 2027 joint return from the pieces computed in lessons 5 to 9, reviews the year and identifies planning points for 2028. As throughout, the figures are invented and illustrative, and they apply 2026 rates on the assumption that they continue to 2027.

Filing deadlines

An S corporation files Form 1120-S, and a partnership Form 1065, by the 15th day of the third month after its year-end: 15 March 2028 for Brandt Aerial LLC and SkyGrid Data LLC. A C corporation files Form 1120 by the 15th day of the fourth month, 15 April for a calendar-year corporation. Each entity can obtain an automatic six-month extension (Form 7004), to 15 September for S corporations and partnerships and 15 October for C corporations. The entities must give each owner a Schedule K-1 by the return's due date, including any extension, and individual owners often must extend their own returns while waiting for K-1s. Late filing of Form 1120-S or 1065 brings a penalty for each month or part of a month, up to 12 months, multiplied by the number of shareholders or partners, even if no tax is due. The Brandts' 2027 Form 1040 is due on 15 April 2028, or 15 October with an extension, which extends only the time to file.

Estimated tax

Corporations pay estimated tax as described in lesson 3, and individuals with income not covered by withholding, such as S corporation and partnership income, must pay estimated tax on 15 April, 15 June and 15 September of the year and 15 January of the next year. The underpayment addition to tax is avoided if total withholding and timely estimated payments equal at least 90 percent of the current year's tax or 100 percent of the prior year's tax, 110 percent if the prior year's AGI exceeded $150,000. Withholding is treated as paid evenly through the year regardless of when it was withheld, so an owner-employee can catch up on a shortfall late in the year by increasing withholding from salary, which is often easier than making estimated payments. Iowa and most other states have similar estimated tax rules, and an entity that elects a PTET may have to make estimated payments of that tax.

Payroll, information returns and state filings

As an employer, Brandt Aerial LLC must withhold income tax and the employee share of FICA from Leah's wages, deposit them with its own share under the semiweekly or monthly deposit schedule, file Form 941 quarterly and Form 940 annually for federal unemployment tax, and give Forms W-2 to employees and the Social Security Administration by 31 January 2028. Payments of $600 or more to contractors were reportable on Form 1099-NEC; the 2025 act raised that threshold to $2,000 for payments made after 2025, indexed from 2027. The trust fund recovery penalty under section 6672 makes responsible persons personally liable for withheld taxes the business fails to pay over. At the state level, Brandt Aerial must file Iowa's S corporation return, with its PTET election, Iowa withholding returns, and nonresident or composite returns in Nebraska and Minnesota, and must register for sales tax wherever its services are taxable. The beneficial ownership reporting that the Corporate Transparency Act once required of small companies was limited by FinCEN in 2025 to foreign reporting companies, so domestic companies such as Brandt Aerial LLC are no longer required to report under it, a rule worth rechecking.

Audits of entities

S corporation items are examined at the shareholder level: the IRS examines the corporation's return and adjusts each shareholder's return, within each shareholder's assessment period (generally three years from the filing of the individual return). Partnerships are examined under the centralized audit regime described in lesson 7, unless they have elected out: adjustments are determined at the partnership level, and the partnership pays an imputed underpayment unless it elects to push the adjustments out to the partners of the reviewed year. C corporations are examined like individuals, with a three-year period that extends to six years for substantial omissions; larger corporations face continuous examination programs. Disputes go to the IRS Independent Office of Appeals and then to the Tax Court, a district court or the Court of Federal Claims, as described in ACCT-351. Keeping the basis computations, the reasonable compensation file and the PTET election documents in order shortens any examination.

Capstone: Brandt Aerial LLC and the Brandts in 2027

The program brings the year together. Brandt Aerial LLC's ordinary business income of $94,836 from lesson 8 is reduced by the Iowa PTET of $2,862.25 from lesson 9, and its interest, qualified dividends and capital gain pass through as separately stated items. SkyGrid Data LLC's K-1 adds $23,000 of ordinary income subject to self-employment tax, from lesson 7. Leah's W-2 shows her $70,000 salary and Tomás's W-2 his $38,000. The QBI deduction applies to both businesses' ordinary income, the qualified dividends and capital gain are taxed at 15 percent, and the Brandts claim the standard deduction and the child tax credit for Nora. Leah's withholding and Tomás's total $11,600, and they paid $18,000 of estimated tax during 2027.

# Capstone: Brandt Aerial's 2027 Form 1120-S and the Brandts' 2027 Form 1040, married filing
# jointly, using 2026 rates (illustrative; federal only)
BR = [(24_800, 0.10), (100_800, 0.12), (211_400, 0.22), (403_550, 0.24),
      (512_450, 0.32), (768_700, 0.35), (float('inf'), 0.37)]
def bracket(x):
    tax, lo = 0.0, 0.0
    for hi, r in BR:
        if x > lo:
            tax += (min(x, hi) - lo) * r
        lo = hi
    return tax

obi = 94_836 - 2_862.25          # S corporation ordinary income after the Iowa PTET (lesson 9)
interest, qual_div, ltcg = 4_000, 6_000, 6_000
partnership = 23_000             # SkyGrid Data LLC, K-1 box 1 (lesson 7)
wages = 70_000 + 38_000          # Leah's W-2 from Brandt Aerial and Tomas's W-2
se_tax = 0.153 * 0.9235 * partnership
total_income = wages + obi + interest + qual_div + ltcg + partnership
agi = total_income - se_tax / 2
std = 32_200
pref = qual_div + ltcg
qbi_base = obi + partnership - se_tax / 2
qbi = min(0.20 * qbi_base, 0.20 * (agi - std - pref))
taxable = agi - std - qbi
ordinary = taxable - pref
zero = max(0.0, min(pref, 98_900 - ordinary))
income_tax = bracket(ordinary) + 0.15 * (pref - zero)
ctc = 2_200
total_tax = income_tax - ctc + se_tax
withholding, estimates = 11_600, 18_000
rows = [("Wages (two Forms W-2)", wages), ("S corporation ordinary income (K-1)", obi),
        ("Partnership ordinary income (K-1)", partnership), ("Interest", interest),
        ("Qualified dividends", qual_div), ("Net long-term capital gain", ltcg),
        ("Total income", total_income), ("Less half of SE tax", -se_tax / 2),
        ("Adjusted gross income", agi), ("Less standard deduction", -std),
        ("Less QBI deduction", -qbi), ("Taxable income", taxable),
        ("Income tax (ordinary and 15% rates)", income_tax), ("Less child tax credit", -ctc),
        ("Plus self-employment tax", se_tax), ("Total federal tax", total_tax),
        ("Less withholding and estimated tax paid", -(withholding + estimates)),
        ("Amount owed, due 15 April 2028", total_tax - withholding - estimates)]
for k, v in rows:
    print(f"{k:<44}{v:>11,.2f}")
prior_year_tax = 15_502.18       # the Brandts' 2026 total tax (ACCT-351 capstone)
safe = 1.10 * prior_year_tax     # 2026 AGI exceeded $150,000
print(f"Prior-year safe harbor {safe:,.2f} met by payments of {withholding + estimates:,}: "
      f"{withholding + estimates >= safe}")
print(f"NIIT applies? MAGI {agi:,.0f} vs $250,000 threshold: {agi > 250_000}")

Wages (two Forms W-2)                        108,000.00
S corporation ordinary income (K-1)           91,973.75
Partnership ordinary income (K-1)             23,000.00
Interest                                       4,000.00
Qualified dividends                            6,000.00
Net long-term capital gain                     6,000.00
Total income                                 238,973.75
Less half of SE tax                           -1,624.90
Adjusted gross income                        237,348.85
Less standard deduction                      -32,200.00
Less QBI deduction                           -22,669.77
Taxable income                               182,479.08
Income tax (ordinary and 15% rates)           28,729.40
Less child tax credit                         -2,200.00
Plus self-employment tax                       3,249.80
Total federal tax                             29,779.19
Less withholding and estimated tax paid      -29,600.00
Amount owed, due 15 April 2028                   179.19
Prior-year safe harbor 17,052.40 met by payments of 29,600: True
NIIT applies? MAGI 237,349 vs $250,000 threshold: False

Total income is $238,973.75 and AGI $237,348.85. The standard deduction and a QBI deduction of $22,669.77 bring taxable income to $182,479.08, in the 22 percent bracket. Income tax is $28,729.40; after the $2,200 child tax credit and with $3,249.80 of self-employment tax on the SkyGrid income, total federal tax is $29,779.19. Payments of $29,600 leave $179.19 owing on 15 April 2028, and because they exceed 110 percent of the 2026 tax of $15,502.18, no estimated tax penalty applies. Modified AGI is below the $250,000 threshold for the net investment income tax. Compared with the C corporation and sole proprietorship alternatives in lesson 5, the S corporation and PTET structure keeps the family's federal tax low while leaving Leah exposed mainly to the reasonable compensation question.

Reviewing the year and planning for 2028

A review of the year suggests several points for 2028. Leah's $70,000 salary is below the range suggested by market data, so raising it toward $90,000 to $100,000, documented by a compensation study, reduces the reasonable compensation risk, increases her 401(k) contribution base and costs relatively little. Because their 2027 AGI exceeded $150,000, the Brandts' prior-year safe harbor for 2028 requires payments of 110 percent of the 2027 tax of $29,779.19, about $32,757. Brandt Aerial should continue the Iowa PTET election and confirm whether Nebraska and Minnesota offer similar elections. SkyGrid Data LLC should decide whether to elect out of the centralized partnership audit regime and confirm both members' self-employment tax treatment. If outside investors are expected or the Brandts plan to reinvest for a sale in five years or more, they should revisit the C corporation and section 1202 analysis from lessons 4 and 5. A gift of nonvoting shares to a trust for Nora, using the annual exclusion, could begin shifting future growth. And the corporation should keep its basis schedules, Form 7203 support and payroll records current.