What’s a corporation?
A legal entity owned by shareholders. The Corporation itself and not the shareholders will be held liable for actions and debts the business incurs. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Corporations are required to pay federal and state taxes. Corporations are usually taxed twice when the company makes a profit and to shareholders when distributed as dividends. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
Who must file a tax return?
All domestic corporations, including corporations in bankruptcy, must file an income tax return whether or not they have taxable income. Corporations must file Form 1120, unless they are required, exempt under section 501, or elect to file a special return.
If an entity with more than one owner was formed as a Limited Liability Company (LLC), it is generally treated as a partnership for tax purposes and files Form 1065. Otherwise, if it is a single-member LLC, it is disregarded as an entity separate from its owner and reports its income and deductions on its owner’s Federal Individual Income tax return. However, the LLC can file a Form 1120 if it has filed Form 8832 to elect to be treated as an association taxable as a corporation.
How to form a Corporation?
Decide on a corporate name. File Articles of Incorporation with the Secretary of State and pay the filing fee to incorporate. The Articles of incorporation is the document filed with the state agency to start the corporation. Apply for an Employer Identification Number with the Internal Revenue Service to receive a tax ID for tax returns and other government forms. Be sure to check with your state if they require corporation to establish directors and issue stock certificates to shareholders. If you decide to operate under a different name than the registered name, please remember to file a fictitious name (aka trade name or “doing business as” name).
When to file a Corporation?
A corporation must file the income tax return by the 15th of the 4th month after the end of its tax year. For example, a company with tax year ending December 31, 2016 must file the income tax return by April 15, 2017. A corporation that has dissolved must generally file by the 15th day of the 4th month after the date it dissolved.
However, for a corporation with a fiscal tax year ending June 30, they must file by the 15th of the 3rd month after the end of its tax year.
If the due date falls on a Saturday, Sunday, or federal holiday, the corporation can file on the next business day.
What’s a S Corporation?
S Corporations are corporations that elect to pass corporate income, losses, deductions and credits through their shareholders. The shareholders report the flow-through of income and losses on their individual income tax returns and are assessed tax at their income tax rates. S Corporations are responsible for tax on certain built-in gains and passive income at the entity level.
Shareholders will receive a Schedule K-1 to report their share of the corporation’s income, deductions, credits and other items. Shareholders may be liable for tax on their share of the corporation’s income, where or not it was distributed. Your share of S corporation income is not self-employment income and it is not subject to self-employment tax.
How to form a S Corporation?
The corporation must submit Form 2553 Election by a Small Business Corporation signed by all the shareholders. If it is not signed by all shareholders, the Internal Revenue Service will reject the election request. After filing Form 2553, you should have received confirmation that Form 2553 was accepted.
To be eligible for a S Corporation, the corporation must meet the following:
- Be a domestic corporation
- Have only allowable shareholders who are individuals, certain trusts, and estates
- Shareholders may NOT be partnerships, corporations or non-resident alien shareholders
- Have no more than 100 Shareholders
- Have only one class of Stock
- Must not be an ineligible corporation (example: financial institutions, insurance companies, and domestic international sales corporations)
Benefits of filing a S Corporation tax return?
Shareholders of S corporations report the income and losses on their personal tax returns and are assessed tax at their individual income tax rates. The business is not taxed on itself. This allows the S corporations to avoid double taxation on the corporate level.
Some expenses incurred by the shareholder can be written off as business expenses.
Another benefit is the owners personal assets are shielded from the claims of business creditors.
When to file a S Corporation?
An S Corporation must file Form 1120S by the 15th day of the 3rd month after the end of the tax year. For example, for calendar year corporations, the due date is March 15, 2017. If the due date falls on the weekend or federal holiday, the filing due date will be the following business day.
Who can sign off on the return?
The return must be signed and dated by the president, vice president or any other corporate officer authorized to sign. If a return is filed on behalf of the corporation by a trustee, the fiduciary must sign the return instead of the corporate officer. The return and forms signed by the receiver or trustee on behalf of the corporation must be accompanied by a copy of the court authorizing signature of the return.
When to make estimated tax payments?
The corporation must pay any tax due in full no later than the due date for filing its tax return. Filing an extension will NOT extend the payment due date. The corporation can send a check or pay electronically with the Electronic Federal Tax Payment System (EFTPS). For any deposit made by EFTPS, the corporation must submit the deposit by 5PM PST the day before the deposit is due.
If the corporation expects the total tax for the year to be $500 or more, then the corporation must make installment payments of estimated tax. The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the year, if applicable.
Interest is charged on taxes paid late even if an extension of time to file is accepted. Interest is also charged on penalties imposed for failure to file or understating transactions and tax. A corporation that does not file its tax return by the due date, including extensions, may be penalized 5 of the unpaid tax for each month, up to a maximum of 25 of the unpaid tax. A corporation that does not pay the tax when due may be penalized 0.5 of the unpaid tax for each month the tax is not paid, up to a max of 25 of the unpaid tax.
What are the types of estate tax returns?
There are two kinds of taxes owed by an estate. The estate tax is the transfer of assets from the decedent to their beneficiaries and heirs. The other is the Income tax which is income generated by assets of the decedent’s estate. When someone dies, their assets become property of their estate. Any income the assets generate is part of the estate and may trigger the requirements to file an estate income tax returns.
What are some types of assets that would generate income to the decedent’s estate?
Savings accounts, CDs, stocks, mutual funds, rental property
Am I required to file an estate tax return?
If the estate generates more than $600.00 in annual gross income, then a Form 1041, U.S. Income tax return for Estates and Trusts is required to be filed for that tax year.
What’s an EIN? Can we use the decedent’s social security number?
The social security number of the decedent cannot be used as the EIN for the return. To file a tax return, you will need to apply for a tax ID number for the estate. An estate’s tax ID number is called an “employer Identification number” or EIN. To apply for the EIN, you can apply by mail, FAX, or fill out the form online via https://sa2.www4.irs.gov/modiein/individual/index.jsp
If the estate or trust has not received its EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN.
What is a Schedule K-1? Why does the beneficiary receive them?
All income distributions made to beneficiaries must be reported on a Schedule K-1. As the Trust or estate beneficiary, you must include the amounts reported on the Schedule K-1 on your individual income tax return. The Schedule K-1 will report each type of income received in various areas of the form.
When should we file by?
For Calendar year estates and trusts, file Form 1041 by April 15. For fiscal year estates and trusts, file Form 1041 by the 15th day of the 4th month following the close of the tax year. If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day.
If more time is needed to file the estate or trust return, use Form 7004 Application for Automatic Extension of Time to File Certain Business Income Tax to apply for an automatic 5 ½ month extension of time to file.
Who can sign off on the return?
The fiduciary, or an authorized representative, must sign Form 1041. If there are multiple fiduciaries, only one is required to sign the return. If this is an initial or final tax return, please include Form 56, Notice Concerning Fiduciary Relationship. You must notify the Internal Revenue Service of the creation or termination of a fiduciary relationship.