Tax Filing & Deduction Updates for Pass-Through Entities in 2026
Do you operate your business as a partnership, an LLC treated as a partnership, or an S corporation? These are known as pass-through entities because they pass income, deductions, and credits directly to their owners. While they don’t pay federal income tax at the entity level, they still have important filing obligations—and recent legislation affects how deductions work in 2026.
This guide from THF (Thomas Howell Ferguson) outlines what pass-through businesses need to know for the 2026 tax season.
Filing Deadline for 2025 Returns: March 16, 2026
If your business uses a calendar-year tax year, your federal income tax return is due by March 16, 2026 (since March 15 falls on a Sunday).
Here’s what to file:
- Partnerships / LLCs (treated as partnerships): File IRS Form 1065
- S Corporations: File IRS Form 1120-S
Need more time? File IRS Form 7004 by March 16 to get a six-month extension, moving your deadline to September 15, 2026.
Reminder: If you extend your entity’s return, you’ll likely need to extend your personal tax return to October 15 as well.
Don’t Delay on Schedules K-1
Each owner of a pass-through entity receives a Schedule K-1, which outlines their share of income, losses, and deductions. These must be:
- Sent to owners (electronic delivery allowed)
- Filed with the entity’s tax return
Even with an extension, K-1s must go out by the return deadline, so the sooner you prepare them, the better.
3 Major Tax Law Changes Affecting 2025 Returns
Thanks to the One Big Beautiful Bill Act (OBBBA), passed in July 2025, there are new tax-saving opportunities for businesses filing 2025 returns in 2026.
1. 100% First-Year Depreciation Restored
- Applies to eligible assets acquired and placed in service after January 19, 2025
- Section 179 limit increased to $2.5 million
- Phaseout begins at $4 million
- Also applies to certain nonresidential buildings classified as qualified production property (e.g., factories)
2. R&E Expenditures: Full Deduction Allowed
- Businesses can now fully deduct eligible domestic research and experimental (R&E) expenditures starting in 2025
- Retroactive election available for tax years 2022–2024
- Unamortized costs from earlier years may be written off over 1 or 2 years starting in 2025
IRS Guidance on R&E Expenses
3. Business Interest Deduction Rules Loosened
- OBBBA expanded how much business interest expense can be deducted
- Most small and midsize businesses are exempt from the limitation, but it’s best to confirm with your CPA
📌 If your business has large loans or capital needs, this could result in significant savings.
Key Action Items Before March 16, 2026
✅ File Form 1065 or 1120-S, or request an extension
✅ Finalize and distribute Schedules K-1
✅ Assess eligibility for new depreciation, R&E, and interest deductions
✅ Contact your CPA about any retroactive elections under OBBBA
At THF, we help pass-through entities plan, prepare, and file with confidence—while optimizing for every legal tax-saving opportunity.📞Get started today or visit www.THF.cpa for personalized support.
