Discussion:Estimated tax payments for an s corporation
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| 30 December 2006 | |
| I do not understand federal i1120s instructions on estimated tax payments for s corporations (Page 4). What are the "tax on built in gains", "excess net passive income tax" and "investment credit recapture tax?"
It says if the total of those is $500 or more, estimated tax needs to be paid. But by whom? The wording seems to suggest that the corporation needs to pay the tax. This is a very confusing topic for me. My corp was formed in July and I made no estimated payments this year. Using accrual method, net profit for '06 is gonna be around $32k. Hopefully '07 will be around $100k. | |
Death&Taxes (talk|edits) said: | 30 December 2006 |
| Jc: do find a professional. He or she will probably smile at your question and assure you that you have no taxes to pay, unless there is something not spoken here. You will pay the taxes indivudually on your profit on your 1040. | |
| 31 December 2006 | |
| The items to which the estimated tax instructions refer apply only to an S corporation that was previously a Subchapter C corporation. If a C corporation becomes an S, its assets are valued at the date of the election. The excess of the fair market value of the assets over their adjusted basis is "built-in" gain, i.e, gain that had accrued but had not been realized or recognized at the time of the election. If the assets are sold within 10 years after the S election, the gain (up to the built-in gain that existed at the date of the election) is subject to tax at regular C corporation rates.
Similarly, a former C corporation that has earnings and profits remaining from its C days is limited in the amount of its income that can arise from passive sources without triggering a corporate-level tax at C corporation rates. This is the tax on excess net passive income. Also, an S corporation that claimed an investment tax credit on assets it acquired in its C days, and then disposes of the assets or otherwise triggers recapture of all or part of the ITC, must pay the recapture at the corporate level. A corporation that has always been an S since its inception is not subject to any of these corporate-level taxes. | |
Michaelstar (talk|edits) said: | 31 December 2006 |
| As both Death&Taxes & KatieJ have stated/surmised - you have only been a corp since July 2006 - if you elected S-Corp (and even if you have not - you still can with some assistance) you have nothing to worry about here.
Only thing to deal with are the estimated taxes due for your state which will depend on the state you are incorporated in.
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