Discussion:S corporation taxation review

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Discussion Forum Index --> Basic Tax Questions --> S corporation taxation review
Discussion Forum Index --> Tax Questions --> S corporation taxation review

Newarcher (talk|edits) said:

17 December 2007

Hi all...sorry for such a basic question but it has been a while since I graduated and I want to make sure I am correct. S corporation taxation is a cluster so to speak and nowhere on the web can I find a succint summary of the taxation. So I decided to create one myself and get some buy in.

Federal taxation:

-The S corp fills out 1120-S

-The owner (lets assume one) will receive a salary on which payroll taxes will be paid. The 1/2 of FICA will be an expense to the company while the second 1/2 will be a reduction in the owner's check. All taxes must be remitted according to IRS schedules and the S corp would have to fill out a 941 and a 940 with deposit form 8109. At the end of the year, the S Corporation would W-2 the owner and give the owner a K-1 for their share of the remaining profits (after salary expense).

-The S corp would pay estimated taxes (if necessary) using form 1120-W

-The owner would report the W-2 income per normal employee wages on his 1040 and then report the K-1 income on his/her Schedule E. The W-2 reported income would NOT go on Schedule E. The taxpayer would owe quarterly estimated taxes on form 1040-es if: he/she expects to owe at least $1,000 in tax for 2007 (after subtracting your withholding and credits) and he/she expects their withholding and credits to be less than the smaller of: 1. 90% of the tax shown on your 2007 tax return, or 2. 100% of the tax shown on your 2006 tax return.

State Taxation:

If you are familar with State of Georgia taxation....

The S Corp would fill out form 600-S to pay the net worth tax.

The owner would have the W-2 wages included as salary as well as his/her share of the distributions included in their Federal AGI and therefore would flow through to their personal georgia 500 form.

Forgive me if any of this is ignorant but it has been a while since I graduated and the tax laws have changed much.

Thanks, Michael

Jdugancpa (talk\|edits) said:	17 December 2007
If you want to get up to speed on S corp taxation I would suggest investing in some quality tax resouces, e.g., PPC Guide to Tax Planning for S Corps, PPC 1120S Deskbook or a myriad other books. Trying to summarize it here is a fool's errand.

Newarcher (talk|edits) said:

17 December 2007

Thanks for the links and I will certainly look into that. I am not trying to summarize everything possible but just the high level overview. I definitely understand that there are a LOT of details behind the scene but I am looking for the generics.

Thanks!

Michael

Bottom Line (talk\|edits) said:	17 December 2007
As for the generics, you're on track for the federal (don't know anything about GA). As an aside, I usually adjust the withholding instead of having them pay estimated taxes. Many individuals have problems budgeting for quarterly payments.

Newarcher (talk\|edits) said:	17 December 2007
Thanks Bottomline......you are a gem! Michael

JR1 (talk\|edits) said:	December 17, 2007
Uh, no, no estimates on 1120W. That's C corps only.

ThinkTax (talk\|edits) said:	17 December 2007
JR1: Uh, no, no estimates on 1120W. That's C corps only. Actually, S corps use the 1120W to pay estimates on corporate level taxes (e.g., built-in gain, net passive investment income).

JR1 (talk\|edits) said:	December 17, 2007
OK, picky picky picky. Like anyone's ever done that. But yes, you get the star for scrupulous correction!

Newarcher (talk|edits) said:

18 December 2007

The 1120W as I understand it is used for corporate level taxes and NOT for individual estimated income tax (that goes on 1040-ES).

Since the S-corp shareholder doesn't pay self-employment tax, there would be no shareholder 1040-SE form needed.

Michael

Dennis (talk\|edits) said:	18 December 2007
Actually BL is referring to shareholder's w-2 withholding and personal estimated taxes.

Bottom Line (talk\|edits) said:	18 December 2007
That's right. Thanks Dennis.

Newarcher (talk|edits) said:

18 December 2007

I actually did pretty well above and didn't get slapped around, now I will show true and complete ineptitude....:D

With respect to the S corp shareholder, they wouldn't have to file any quarterlies, right? The salary is W-2'd. The distributions are considered dividends and aren't subject to self-employment tax. So the S corp shareholder in this case wouldn't have to file 1040-SE or quarterlies, right?

Okay....dogpile! :D

p.s. I told my sources that are referring me tax returns this season that I only want disregarded LLC's and personal returns. I don't want to reflect badly on the referrer or get sued. I am trying to ramp up my remembrance by reverse engineering the onion so to speak....getting schedules and procedures on the high level and then working into the nth degree. I am also looking into some of the reference manuals mentioned above. I can find good summaries on line for all other forms of business but not for S Corps.

Michael

JR1 (talk\|edits) said:	December 18, 2007
Pretty close. The profits pass thru, whether distributed or not. Those profits increase the tax on the 1040, which has to be covered somehow. As Bottom Line suggested, and yes, she IS a gem, you can choose to dump extra withholding on the W2 to avoid quarterly ES's. I do the same for all but the highest income S's where there ain't 'nuff salary to cover the total taxes! Happy problem.

CrowJD (talk\|edits) said:	18 December 2007
You can also try "The Complete Guide to Preparing Limited Liability Co., Partnership, and S. Corporation Federal Income Tax Returns" by Surgent-McCoy. http://surgent.com I think the course code is PLPS. I recommend that you get the written material, and not the CD-rom. You need to work some of this out by hand and calculator.

Newarcher (talk|edits) said:

18 December 2007

Thanks JR1....

So basically, even though there is no self employment tax on S Corp income, the shareholder can be required to pay quarterlies or bulk up the W2 withholding to cover the shortfall of withholding on the bulked up 1040. In effect, you are covering the Federal income tax shortfall by bulking up the w-2.

Michael

JR1 (talk\|edits) said:	December 18, 2007
Exactly. They owe tax on the profits passing thru, so if you don't cover that on the W2, which you're permitted to do, then you have to have them making ES's. (And you can cover that W2 via a year end bonus, by the way.)