S Corporations

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S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S corporation status, the corporation must meet the following requirements:

Be a domestic corporation

Have only allowable shareholders

. May be individuals, certain trusts, and estates and

. May not be partnerships, corporations or non-resident alien shareholders

Have no more than 100 shareholders

Have only one class of stock

Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation (PDF) signed by all the shareholders. See the Instructions for Form 2553 (PDF) for all required information and to determine where to file the form.

Filing Requirements:

S Corporation

If you are an S corporation then you may be liable for:

Income Tax

Estimated tax

Employment taxes:

Social security and Medicare taxes and income tax withholding

  • Federal unemployment (FUTA) tax
  • Depositing employment taxes

Excise Taxes

S Corporation Shareholders

If you are an S corporation shareholder then you may be liable for:

Income Tax

Estimated tax

For more detailed information please do not hesitate to call us @ (310) 820-1080 or email @ info@onts9.com

Corporations

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In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

If you are a C corporation, use the information in the chart below to help you determine some of the forms you may be required to file.

Corporations that have assets of $10 million or more and file at least 250 returns annually are required to electronically file their Forms 1120 and 1120S for tax years ending on or after December 31, 2007. For more e-file information, see References/Related Topics listed below.

If you are a C corporation or an S corporation then you may be liable for:

Income Tax

Estimated tax (Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.)

Employment taxes:

  • Social security and Medicare taxes and income tax withholding
  • Federal unemployment (FUTA) tax

Excise Taxes

For more detailed information please do not hesitate to call us @ (310) 820-1080 or email @ info@onts9.com

Business Structures

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Out of all the decisions you make when starting a business, probably the most important one relating to taxes is the type of legal structure you select for your business.

Based on the research we have done, we would like to go back to the structures of forming a business. Pay attention to our upcoming posts about selecting a business structure in details.

When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute.

Legal and tax considerations enter into selecting a business structure.

  • Sole Proprietorships
  • Partnerships
  • Corporations
  • S Corporations
  • Limited Liability Company (LLC)

If you want to start a new business or change the formation of your business from one to another, please contact us for any questions you might have at 310.820.1080 or email @ info@onts9.com