Corporation Tax Deadlines

Corporations big and small face the same basic deadlines for needing to file their taxes. If you own a corporation these may be the most important dates in your life to remember, aside from that all important anniversary date.

Corporate Tax Filing Tips....

What is an S-corp?

"S-corps" are corporation that have made the subchapter S election with the IRS. This allows the profits of the corporation to be passed through as dividends to shareholders, without double taxation. Meaning earnings are not taxed at the corporate level, only at the individual level. Also, these profits are considered passive and therefore not subject to self-employment tax.

What are the advantages of an S-corporation?

S-corps don't face double taxation, which makes them ideal for many small businesses who need a corporate structure for various reasons but want to be taxed in a simpler manner. Also the dividend payments of an S-corp are not subject to self-employment tax so it gives a good middle ground between working for yourself and having employees doing your work for you and receiving business profits accordingly.

What are the disadvantages of an S-corporation?

S-corps must pay out all profit annually as dividends, otherwise it faces taxation on the leftover retained earnings. This makes it hard for a company to save up funds to reinvest and grow the business. Many of the credits and deductions that are available to C-corps, such as employee fringe benefits, are limited to S-corps. So it is a good idea to research carefully which deductions and credits may benefit your situation best before choosing to file the S-corp election.

Can I change later from an S-corp back to a C-corp?

Once you have made the election to become an S-corp you cannot file a new election to become a C-corp until five years have passed unless you lose S-corp status from no longer qualifying to be considered that. However, certain exceptions apply that may allow you a one-time change. But switching back and forth frequently is not allowed.

How do I make my corporation an S-corp?

To be treated as a subchapter S corporation, an election must be made on Form 2553. This election must be made within two months and 15 days into the tax year it will be elected in, meaning it is important to file this form immediately after creating your corporation if you wish it to be classified as an S-corp. If you have formed your corporation already and not filed the S-corp election in time there may be relief available to you, contact your tax advisor to see if the exceptions available may apply in your case.

Do I need to have payroll just for myself?

It is important to set up payroll for S-corps and pay a portion of the income as wages for personal services to shareholders if they do work in the business, so that the IRS does not come in at a later date and determine dividends as being self-employment earnings. C-corps can operate without paying the founders at all, so payroll is less important with them.

What other advantages do C-corps have?

C-corps have more credits and fringe benefits they can be used for, however it is important to carefully structure expense spending documenting business purposes and stay within the legal boundaries.

Will my corporation need a balance sheet?

One important thing to note is that balance sheets are not required for either partnerships or corporations with gross income under $250,000 and assets under $250,000 for corporations. This amount is $1,000,000 for partnerships, one of the reasons why it is preferable to own real estate in an LLC and/or trust structure rather than a corporation.

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