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When forming a business, one of the most important decisions you have to make – particularly from a tax perspective – is how you’ll classify your company. For the smallest operations, this might be a sole proprietorship, but more often the choice is between forming an LLC and a C Corp, each of which has its own filing norms, tax rules, and regulations. But what about S Corp status? You won’t see this option when forming your business, and that’s because S Corp is a tax filing status, not a type of organization.
S Corp Election Basics
While LLCs and C Corps are standard business forms with tax norms of their own, sometimes those tax structures are less than ideal. That’s when a business might choose to make an S Corp election. The key advantage of making an S Corp election is that it combines the best parts of both the LLC and C Corp taxes, like pass-through taxation, personal asset protection, and reduced self-employment tax liabilities. Unlike an LLC, though, companies with shareholders can also elect S Corp status, as long as the company is a domestic one with fewer than 100 shareholders.
Can I File An S Corp For 2019?
In order to make an S Corp election, you have to act early. In fact, S Corp elections need to be made at the very of the beginning of the year, so file soon if you want to take advantage of this tax filing status for 2020. S Corp paperwork needs to be filed within 75 days of the start of the year, so businesses have a few weeks before the 2020 deadline. Headed into the upcoming filing season, you’ll need to file under whatever your standard classification is.
There are a few circumstances when it’s considered acceptable to file for S Corp status late. Specifically, the business needs to be able to show that they intended to file for S Corp status by the deadline and that the business met all other qualifications prior to the deadline. The good news is that the IRS tends to be generous in dealing with deadline issues, as long as the business comes to them within a reasonable time frame.
Making Your Election
If you do choose to file for S Corp status, the first step is to file IRS Form 2553. You cannot do this online. Form 2553 must either be filed by mail or fax, and if you choose to fax your forms, it’s important that you keep the original paperwork. Though they may not be rigid about the election deadline, the IRS is strict about Form 2553 being filed in its original.
Filing Your S Corp Taxes
Unlike making your S Corp election, you can file your actual S Corp taxes online. For larger companies, it may even be required. Overall, the process is quite simple.
To file your S Corp taxes, you’ll follow most of the same procedures you would for any other business tax filing. The most important thing is that you have a skilled tax professional on your side. Unlike personal tax returns, filing S Corp taxes requires a degree of expertise that not all accountants will have, and it involves paperwork that they may not file often, even if they’re used to working with LLCs or C Corps.
There are a number of important forms you’ll need to file to complete your small business’s S Corp filing. They include the following:
Form 1120S: This form is used by domestic corporations to determine income tax liability. To do so, your tax professional will record any income or gains, losses, deductions, and credits your business is eligible for. To ensure that your tax preparation professional can easily do this, be sure to organize all of your business’s information before the preparation process begins.
Schedule K And K-1: S Corps may have multiple owners, and you’ll need to summarize shareholder content on Schedule K and then account for each of them on separate Schedule K-1 forms. Each of these forms should break down the separate owners’ net earnings. For small business owners electing S Corp status, the Schedule K-1 form is the equivalent of an individual 1099 or W-2.
Schedule B: A component of Form 1120S, Schedule B is something of a miscellaneous form. Among the details included on Schedule B is information on stock holdings in other countries and other ownership interests, information about receipts below a given threshold, and other information total assets. Your accountant will be able to use Schedule B to determine whether your company also needs to file Schedules L or M-1, which are only required of companies with assets over a given amount.
Form 940: This is the Federal Unemployment Tax Act (FUTA) form, and all corporations with employees have to submit Form 940 with their taxes. This form ensures that employers pay into the safety net for individuals who become suddenly unemployed. Employees do not pay this tax and it should not be deducted from their income; only employers pay this tax.
Form 941: Similar to Form 940, this form accounts for quarterly income tax payments and FICA taxes. If you’ve ever filed business taxes before, you’ve likely filed both of those forms before and your accountant will have no problem with these.
Form W-2: Though LLCs without any employees may occasionally elect S Corp status, most companies that stand to benefit from this filing status have W-2 employees. Form W-2 records payments to the workers, and you’ll issue W-2s to those workers in advance of the filing period to ensure that they can complete their own taxes.
Form 1099: 1099 employees are independent contractors, and while you don’t pay taxes on these individuals, you do still have to report their work with you, in part to ensure the IRS can appropriately levy taxes on their income.
State-Based S Corp Requirements: Certain states have their own S Corp filing requirements, so consult with your business accountant about any additional paperwork you may be required to file with your state.
Filing – The Technical Side
As noted, you can file your S Corp taxes online, and there are several ways you can do this. You can do this online through the IRS’s free platform; you’ll be directed to the right one depending on your business’s size. You can also have your business’s tax preparation professional file your taxes online through their preferred platform. CPAs are generally well-versed in which platforms are secure and work best for business filings.
When choosing a CPA to handle your S Corp election and filings, it’s important to select a professional with the expertise to manage more complex business taxes, rather than conventional individual or basic LLC filings – and that’s not always easy. That’s why you need Taxfyle.
Taxfyle is different from other tax services because we work with both individual filers and accounting firms looking to diversify and manage their businesses. For businesses looking for filing support, this means that all you have to do is upload your documents and you’ll be paired with an accountant with the appropriate skills to address all of your concerns. It’s simple, transparent, and the best way to complete even complicated returns.
Don’t let your S Corp filing reach the IRS with missing pieces or errors. Learn more about Taxfyle today and start filing early. As an owner, you already have all the information you need to get to work. A skilled accountant is out there waiting for you – it’s the match you’ve been waiting for all along.
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