We are rapidly approaching that time of year. The time of year when every corporation has to make important decisions about their taxes. As your company gets ready to prepare your tax return in 2022, it is important to make an informed choice in S-Corp tax preparation and planning. Smaller corporations, in particular, have some options when it comes to their federal and state tax returns. In this article, we will provide a checklist for filing S-Corp taxes.
To begin with, here are the basics about corporations and taxes. When a business forms a corporation it will always be taxed as a C-Corp. C-Corps have their corporate income taxed and the shareholders have their salary and dividends taxed. This is known as “double taxation”. S-Corps aren’t subject to double taxation, the shareholders of an S-Corp are taxed for the profits on their individual federal and state tax returns but the S-Corp pays no taxes.
It is an obvious advantage for a small corporation to file as an S-Corp but how do you know if your company qualifies to file S-Corporation tax returns? There must be no more than a hundred shareholders. The corporation can only offer one class of stock. The shareholders cannot be non-resident aliens, partnerships, or other corporations; must be U.S. companies.
If you determine that you can file as an S-Corp, then Internal Revenue Service Form 2553 must be filed 2 months and 15 days after the start of the tax year. All the shareholders must sign the form. The tax year starts for new corporations on the date they are formed. Once the IRS approves your S-Corp status, it is permanent unless revoked or terminated.
There are some important deductions that you should know about when you prepare your return in 2022. Small businesses can deduct regular business expenses. On top of that, corporations are entitled to deduct the salaries and bonuses of employees, as well as health insurance and retirement plan costs.
It is important to pay any estimated taxes. There are taxes on S corporations that you must make estimated payments on. If you do not make your quarterly estimated payments on time, penalties and interest will start to accrue for the underpayment.
As you prepare your return in 2022, you should know that Form the 1120S is the proper federal form for an S-Corp. It shows the income, expenses, and losses of your company. Additionally, form K-1 must be filed for every shareholder, declaring their individual share of the corporation’s deductions, income, and credits. They must be provided with a copy of their individual income tax returns.
Finally, when filing S corporation tax returns, you can’t forget about your state tax returns. Depending on the state where the corporation was formed, you may have to pay a corporate tax, usually a flat rate. The corporation and the shareholders must file state returns. Because of the complexity of corporate taxes, you should do a Googled search for one of the best bookkeepers for hire near me in Florida. Find an accountant who can explain the implications of filing S corporation tax returns today.