Do you operate your business as a partnership, a limited liability company (LLC) taxed as a partnership, or an S corporation? These business structures are commonly referred to as pass-through entities because income, deductions, and tax credits flow through to the owners’ individual federal income tax returns. While these entities typically don’t pay federal income tax at the entity level, they still have important filing obligations.
Below is an overview of what pass-through entity owners need to know for the 2025 tax year.
Filing Deadline for Pass-Through Entities
Even though pass-through entities generally don’t owe federal income tax themselves, they must file an annual federal return.
- Partnerships and LLCs taxed as partnerships file Form 1065, U.S. Return of Partnership Income
- S corporations file Form 1120-S, U.S. Income Tax Return for an S Corporation
For entities that use a calendar tax year, the filing deadline for the 2025 return is March 16, 2026, since March 15 falls on a Sunday.
Filing an Extension
If additional time is needed, the deadline can be extended by six months, until September 15, 2026, by filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, by March 16.
Keep in mind that if your business return is extended, you and any other owners will likely also need to file extensions for your individual returns, pushing the personal filing deadline to October 15, 2026.
Schedule K-1 Reporting Requirements
Each year, pass-through entities must provide Schedule K-1 to every owner. These forms detail each owner’s share of income, deductions, and credits and are essential for preparing individual tax returns.
- Schedules K-1 may be delivered electronically
- They must be filed with the entity’s federal tax return
Because owners rely on this information, issuing K-1s as early as possible is best practice. However, if the entity’s return is extended to September 15, 2026, that date also becomes the deadline for distributing Schedules K-1.
Key Tax Law Changes Affecting 2025 Returns
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced several changes that impact pass-through entities. Three updates are especially important.
1. Expanded First-Year Depreciation
The OBBBA permanently restored 100% first-year (bonus) depreciation for qualifying assets acquired and placed in service after January 19, 2025. Previously, full bonus depreciation was only available for assets placed in service in 2022.
In addition, for tax years beginning in 2025:
- The Section 179 expensing limit increased to $2.5 million (up from $1.25 million)
- The phaseout threshold increased to $4 million (up from $3.13 million)
The law also allows 100% first-year depreciation for certain nonresidential real estate classified as qualified production property, such as factory buildings.
2. Immediate Deduction for R&E Expenditures
Under the OBBBA, businesses can immediately deduct eligible domestic research and experimental (R&E) expenditures paid or incurred in tax years beginning in 2025 and later. Previously, these costs were required to be amortized over five years.
Eligible small businesses may also elect to apply this rule retroactively to tax years beginning in 2022, 2023, or 2024. Additionally, businesses with R&E costs from those years can choose to deduct the remaining unamortized balance over one or two years, starting in 2025.
3. More Favorable Business Interest Expense Rules
For tax years beginning in 2025 and beyond, the OBBBA permanently implemented more favorable rules for determining the deductible amount of business interest expense.
While many small and midsize businesses are exempt from the interest expense limitation, it’s important to confirm whether your pass-through entity is affected.
Take Action Before the Deadline
The filing deadline for most 2025 pass-through entity tax returns is approaching. Although extensions are available, action must be taken by March 16 to avoid penalties.
If you haven’t started preparing your return or need help evaluating how recent tax law changes affect your business, now is the time to get moving. Contact your tax advisor to ensure everything is filed accurately and on time.
© 2026