S-corporations, sometime when you were setting up your business, you chose, or someone advised you to choose S-corporation as your business form. One advantage is they avoid the “double taxation” of the C-corporation; the government does not usually tax S-corporations. The S-corporation passes income through to you, a shareholder, and you pay the taxes on your share. Another advantage is that only part of the income passes through to you as self-employment income, reducing the amount of self-employment tax you pay. It is that second advantage where the audit risk lies. Get greedy and the IRS will slaughter you. (more…)
Posts Tagged ‘s-corporation’
Hogs Will Be Slaughtered
Monday, June 20th, 2011Late Filing Fee For Partnership & S-Corporation Returns Soar
Tuesday, January 26th, 2010Starting in 2010 the late filing fee for Partnership returns (Form 1065) and for S-corporation returns (Form 1120S) is increasing. The previous monthly penalty was $89 per month (or part of a month) per shareholder or partner; it is now more than doubled to $195 per month per partner or shareholder. The penalty can be charged for up to 12 months, which is a pretty hefty price tag for not filing a tax return.
The penalty may be abated it the partnership or S-corporation can show the failure to file time was due to a reasonable cause. There are procedures to address these penalties assuming the entity is domestic, has a small number of partners or shareholders, and the individuals in question are natural persons who have reported all their income from the business with timely filed tax returns and this failure to file timely is not an ongoing problem. If the partnership or S-corporation has made a habit of failing to file, do not expect penalty abatement.
Really, the easiest way to handle this issue is not to file late in the first place. For many S-corporations and Partnerships no tax is due; these forms are information returns that tell the individual partners and shareholders their distributive share of income and expenses.
- Partnership tax returns are due April 15 for calendar-year partnerships
- OR the 15 of the fourth month after the close of the fiscal year for fiscal-year partnerships,
- S-corporation tax returns for calendar-year S-corporations are due March 15
- OR the 15th of the third month after the close of the fiscal year for fiscal-year S-corporations.
- If the 15th falls on a weekend or bank holiday the due date is the next business day, therefore in 2010 the S-Corporation tax return is due March 15, 2010 for calendar-year S-corporations.
Like other tax returns a taxpayer can file a form to extend the time to file, but all taxes are due on the day the tax return is initially due, which means the partners or shareholders will have to estimate their tax liability including income from the S-corporation or Partnership without falling short in order to avoid the failure to pay penalty along with interest. Form 7004 can be to file for the extension to file Form 1065 or Form 1120S. The Form 7004 must be filed on or before the original due date or the Form 1065 or Forms 1120S.
Form 7004 will give an automatic 6-month extension to file Form 1120S (S-corporation) returns, but will only grant a 5-month extension to file Form 1065 (Partnership) returns. In 2010 all Forms 1065, and Forms 1120S for which an extension (Form 7004) was filed will be due September 15, 2010.
As always, small business services and taxation are our business. If you need help completing your partnership tax return or S-corporation tax return or need help attempting to get your penalty abated, Please give Art & Business Consulting a call. We would love to engage you as a client.
The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein. Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.
S-Corp should not pay Shareholder taxes
Sunday, November 8th, 2009S-corporations are pass through entities. That means income earned by the corporation is generally passed through to the individual shareholders in proportion to their number of shares of stock; such income is usually not taxed at the S-corporation level.
Of course employee shareholders should pay themselves a reasonable wage and the S-corporation is responsible for the employer share of Social Security & Medicare taxes, as well as Federal & State Unemployment etc. But the employee share needs to come from the wages paid to them. Also the S-corporation should not pay any shareholder’s taxes on their distributive share of income.
In a recent private letter ruling the IRS has held that since the various shareholder tax payments could be different from shareholder to shareholder, distributions to pay for their taxes constitutes a second kind of stock. However S-corporations may only have on class of stock. Therefore the moment an S-corporation issues a distribution paying shareholder taxes, the S-corporation ceases to be an S-corporation. It becomes a C-corporation at that moment subject to the usual “double taxation” of income.
In this case the S-corporation applied for a private letter ruling on this specific issue; the IRS held that since the company in question had requested the ruling, the IRS decided the company had inadvertently created a second class of stock and did not revoke the company’s S-corporation status. This case provides for a potential remedy for other S-corporations who may have done the same thing — apply for a private letter ruling stating that the company may have inadvertently created the second class of stock and request that the company’s S-corporation status not be revoked.
Private letter rulings do have a fee: Taxpayers earning less than $250,000 can request a private letter ruling for a reduced fee of $625, while a fee of $2,500 will apply to requests from taxpayers earning from $250,000 to $1 million. The fee for IRS Chief Counsel private letter rulings is $10,000. Still these fees may be less than being retroactively charged taxes, penalties and interest as an C-corporation.
Small business services are our business. If you need help, with this issue or other issues, Please give Art & Business Consulting a call. We would love to engage you as a client.
The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein. Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.