Tax Prep

Tax Preparation — Return Filing Guide & Document Management

Guide taxpayers through return preparation: what documents to gather, which forms to file, multi-entity coordination, and state return requirements.

DISCLAIMER: This skill provides guidance on tax return preparation. Complex returns should be reviewed by a licensed CPA or Enrolled Agent before filing.

When to Use This Skill

• Starting tax return preparation (what do I need?)
• Determining which forms to file for an LLC/S-Corp
• Creating a document gathering checklist
• Understanding K-1 flow from entities to personal return
• Filing IL state returns alongside federal
• Filing extensions
• Amending a return after discovering an error
• Coordinating multi-entity filing (multiple LLCs)

Context Needed

1. Tax year being prepared
2. Filing status — Single, MFJ, MFS, HoH, QSS
3. Entity types — Each LLC and how it's taxed (disregarded, partnership, S-Corp)
4. Income sources — W-2 jobs, Schedule C businesses, K-1s, investments, rental
5. Major life events — Marriage, divorce, children born, home purchase/sale, business started/closed
6. Prior year return available? — Useful for comparison

Filing Deadlines

Federal

Illinois

CRITICAL: Entity returns (1065, 1120-S) are due BEFORE individual returns. K-1s must be issued to partners/shareholders for them to file their 1040s.

Late Filing Penalties

• Partnership (1065): $235/partner/month, max 12 months
• S-Corp (1120-S): $235/shareholder/month, max 12 months
• Individual (1040): 5% of unpaid tax/month, max 25%. Min penalty for returns >60 days late: lesser of $510 or 100% of tax

Form Selection Guide

Which Forms Do I Need?

Single-Member LLC (Disregarded Entity):

• Schedule C (or Schedule E if rental) on Form 1040
• Schedule SE (self-employment tax)
• Form 8829 (home office, if applicable)
• Form 4562 (depreciation, if applicable)
• IL-1040 (Illinois individual return)

Multi-Member LLC (Partnership):

• Form 1065 (partnership return) with Schedule K-1 for each member
• IL-1065 (IL partnership return) with Schedule K-1-P for each member
• Schedule PTE (if PTE tax election made)
• Each member reports K-1 on their Form 1040, Schedule E

LLC Electing S-Corp:

• Form 1120-S with Schedule K-1 for each shareholder
• IL-1120-ST (IL S-Corp return)
• W-2 for shareholder-employees
• Form 941 (quarterly payroll tax return)
• Each shareholder reports K-1 on their Form 1040, Schedule E

Individual (Form 1040) Supporting Schedules:

Document Gathering Checklist

Income Documents

• W-2s from all employers
• 1099-NEC (contractor/freelance income)
• 1099-K (payment processor income — PayPal, Stripe, etc.)
• 1099-INT (bank interest)
• 1099-DIV (dividends)
• 1099-B (brokerage/investment sales)
• 1099-R (retirement distributions)
• 1099-MISC (other income)
• Schedule K-1s from all partnerships/S-Corps
• Crypto exchange tax reports (1099-DA or equivalent)
• Rental income records (leases, rent rolls)
• Bank statements showing all deposits

Expense Documents

• Business expense receipts (organized by category)
• Vehicle mileage log (date, destination, business purpose, miles)
• Home office measurements and home expense records
• Health insurance premium statements (Form 1095-A/B/C)
• Retirement plan contribution records
• Charitable donation receipts and acknowledgment letters
• Student loan interest (Form 1098-E)
• Mortgage interest (Form 1098)
• Property tax bills paid
• State/local tax payments made
• Childcare expense records (provider name, EIN, amounts)
• Education expenses (Form 1098-T)
• HSA contributions and distributions (Form 5498-SA, 1099-SA)

Entity-Specific Documents

• Prior year tax returns (federal and IL)
• Estimated tax payment records (federal and IL)
• Payroll records and W-2s issued (S-Corps)
• 1099-NEC forms issued to contractors
• Business formation documents (EIN letter, Operating Agreement)
• Depreciation schedules from prior year
• Basis tracking worksheets (for K-1 limitations)

Multi-Entity Filing Coordination

When the user has multiple LLCs:

Filing Order (Critical)

1. Entity returns first (Form 1065, 1120-S) — due March 15
2. Wait for K-1s to be generated
3. Individual return (Form 1040) — due April 15
4. All K-1 income flows to Schedule E of the 1040

K-1 Flow

LLC A (1065) → K-1 → Owner's 1040, Schedule E, Line 28
LLC B (1120-S) → K-1 → Owner's 1040, Schedule E, Line 28
LLC C (Schedule C) → Directly on 1040, Schedule C

Basis Tracking

• Each entity requires separate basis tracking
• Basis limits the amount of loss that can be deducted (Section 704(d) / 1366(d))
• Basis is adjusted annually: + income, + contributions, - distributions, - losses
• Form 7203 (S-Corp Shareholder Basis) required starting 2021
• At-risk rules (Section 465) and passive activity rules (Section 469) apply after basis

Extension Filing

When to File an Extension

• Cannot gather all documents by the deadline
• K-1s not yet received from entities
• Need more time for complex planning decisions
• An extension extends time to FILE, not time to PAY

How to File

• Federal: Form 4868 (individual), Form 7004 (partnership/S-Corp)
• Illinois: IL follows federal extension automatically if filed by the IL due date
• Estimated payment: Include estimated tax due with extension to avoid penalties

Amended Returns

Federal

• Form 1040-X for individual returns
• File within 3 years of original filing date (or 2 years from date of tax payment)
• E-filing of 1040-X now available for current and prior 2 tax years

Illinois

• Form IL-1040-X for IL individual returns
• 120-DAY RULE: If the IRS adjusts your federal return, you MUST file an amended IL return within 120 days of the federal final determination. Failure extends IL statute of limitations indefinitely for that issue.

Reference Files

• references/filing-checklist.md — Detailed document checklist by entity type and income source
• references/form-guide.md — Complete form selection guide with filing scenarios