Discussion:SCorp Tax Filings
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Discussion Forum Index --> Tax Questions --> SCorp Tax Filings
| 13 June 2008 | |
| I own a Small business under LLC umberlla. I am planning to file return this year on SCorp which I know is possible but I have few questions on tax filing obligations.
What are the tax filings/forms need to be filed and how often? I know I need to payroll taxes too if I have employees. Which ones and how often? | |
| June 13, 2008 | |
| Well, I could tell you all that, but so can the accountant you should hire. Really. Not an amateur sport by any means, and for sure, you need to start by knowing that you can't JUST file as an S. You have to elect S status FIRST or you'll really make life miserable for yourself. | |
| 13 June 2008 | |
| JR1, I agree with you. I am planning to hire but I want to decide how much of work is there and how much I need to pay for that work. I know its not a joke. But I want to get an idea. I been filing LLC 1065 myself for 4 years for my business which has just minimal income. Now I am going to be self employed to my business. I know there is advntage in SCorp to LLC to save some SE tax. Thats why I considering SCorp. I know you need to file 2253 to elect SCorp status..
Please go and tell me the obligations for an SCorp quaterly and yearly. Is it only Payroll tax quaterly and yearly 1120S ? or anything else? | |
| June 13, 2008 | |
| As for corps, you are on payroll, which means minimally, quarterly filings for both state (usually two) and Fed, and year end W2's, 940 and the like. You need to research to determine what reasonable salary is for your job in that area. www.payscale.com is one, www.salary.com. Both have free sections, review job descriptions carefully. | |
| 13 June 2008 | |
| Thanks JR1. Basically its only payroll tax which needs to be filed quaterly and early Scorp return and W2's to be sent. Thats all right. You are right, I need to check on reasonble salary and others can be taken out as distribution. Thats what I found to avoid any IRS audit.
Pegoo, I don't agree with you. The main advantage of SCorp to save on SE taxes after paying reasonable salary and get balance as ditribution with capital gain tax on you 1040 yearly. Take an example of 140K per year of income in your SCorp and you only get paid 100k and remaining 40K can be taken out as distributions.. Thats my understadning. JR1, quick question on payroll tax. I know its total 15.3% tax to be paid for FICA, medicacare and so forth. Where is the individual tax rate come in to play?! | |
| 13 June 2008 | |
| Vijay, are you the sole owner of this business? If so, you have already been doing it wrong, since a single-member LLC is a disregarded entity and does not file an 1165. Instead, its income and expenses are reported on the single owner's individual income tax return as if the LLC did not exist as a separate entity.
Electing to have an LLC taxed as an S corporation leads to a lot of complications, and as Pegoo suggests, you may not save enough self-employment tax to recover the additional compliance costs involved. Don't do anything without consulting a tax professional who handles small businesses. The choice of entity is a decision that requires knowledge of all of the relevant facts and circumstances. We can't help you very much here because there is no way we can have access to everything we would need to know. Sit down with a knowledgeable professional ASAP. | |
| 13 June 2008 | |
| ... and in your response to Pegoo, you seem to think that distributions from an S corporation are taxed as capital gains. That is not true. So you really do need to talk to someone who can explain all of this to you. | |
| 13 June 2008 | |
| Pegoo was probably commenting on the "minimal income" section of your earlier post. Depending on your income, as KatieJ says, the compliance costs would offset tax savings. If you are increasing the business to the numbers you describe, then yes it may save you some taxes.
The individual tax rate will be applied to your wages (as usual) and taxable income in the S-corp after deducting your wages. | |
| 13 June 2008 | |
| Katie,
I know where you coming from. I am neither CPA or an accountant but a guy who always researches and gets advice from PRo's like you. Its a 2 owner LLC myself and my wife and thats why i been filing 1065. What do you mean compliance cost?! How much do you think you have to spend on it? Wayne, This is the first time I amhearing about compliance cost. I already been talking to a CPA and he explained me a bit but not clearly. Thats why i am here. So you are saying if I get 140K like I mentioned, you think doing SCorp would be reasonable with 40K distribution. On the explaination you gave me, individual tax rate applies to my wages and distributions. Agreed. As an employer, when I send a paycheck, I deduct 7.5% or as per individual tax rate?! I always thought its according to individual tax rate.. am I right?! I also think being a SCorp you get writeoff's on medical, insurance,Solo 401k and so forth. is my assumption right?! | |
| 13 June 2008 | |
| Tmvijai,
Have you ever thought of the difference between filing a 1065, having 2 K-1s to you and your wife while you guys file a joint return vs having an SM LLC where as everything is flowed through to you as a Schedule C? SCORP Compliance: Some of the minor ones: Some states charge a franchise fee based on the amount of shares authorized and based on par value. It can be anywhere from $200-$20000. Some states charge a fee based on your SCORP's income. Record Keeping of Corporate Minutes. Some states require you to file those as well. Extra time and money involved with SCORP up keep. Just a sample glance on Capital Accounts itself. 1065: Partnership Contributions 1120S: Par Value of Stock (contribution) Additional Paid in Capital There is alot more to this list. Please consult your CPA and have him outline the Pros and Cons for you. It might make sense now but will it make sense in the future? Also, when you have more share holders for example, your distributions must be pro rata. For example, if you want the 40k distributed to you, 50% must be to the wife vs. 1065 partnerships can have 59/41 depending on your partnership agreement. There is a huge list of pros and cons and it should be studied and researched on a per case senario. For example, what kind of business are you in? What kind of growth are you experiencing? Do you plan to get additional capital by selling stock? What kind of structure do you have now? In regards to medical write offs, insurance, solo 401ks. Well if both pockets are yours, what is the difference between the two? It is a big difference if there are unrelated share holders and different options such as SEP IRA, SIMPLE IRA, and other deferrals available to different entities. Employment Taxes: Places like Paychex / ADP / and other local book keeping firms offers such services as low as $35 a month. You first have to consider FICA/FUTA/FWT/SWT/LOCAL. What about workmen's comp insurance? Partners draw as guaranteed payments subjectable to SE TAXES. Did the CPA calculate the total difference for you and see how much actual SE tax you are saving vs the SCORP route. I just want to emphasize if you and your wife own the SCORP, you are essentially dealing with your right and left pocket. Just a thought =) | |
| June 13, 2008 | |
| It all hinges on the reasonable salary. If reasonable means 100k, then you'd have 40k at current levels which avoids the 2.9% medicare tax. (income tax rates are all the same no matter what, btw) So 40k * 2.9% is 1160. I can tell you already that your annual cost for filing PR returns plus a corp will exceed that. Well, hang on, you already file a 1065, so no difference there. You won't save much at the current levels. But if you project income to keep increasing, there will be a payoff later. Quarterly PR returns can even be automated, but an accountant really needs to review the books from time to time. Assuming annual increases in income, sounds like the right time to pull the trigger. | |
| 14 June 2008 | |
| I don't know what type of business you have, but you may also have quarterly sales tax returns.
The s corp is different from a partnership. Speak to your acct and learn the difference prior to making an election. | |
