Corporate Tax Returns
There are different types of corporations. Corporations do have a number of common points. First off, a separate corporate tax return is required. Accurate bookkeeping is important. Payroll tax is required. In general, corporations are expected to have their administrative paperwork in good order. Fines and penalties can be steep. Corporation documents are filed at the state level. Board Meetings, board minutes, documents of incorporation are routine requirements. Corporations also file taxes in various states, and laws vary from state to state.
At Torchlight Tax, we file corporate tax returns as needed for any state in the United States. Our tax training and expertise and the computer software we employ allows us to do this. The federal corporate tax return is done first. Then the state corporate tax return is done, drawing needful data from the federal return. Then unique questions for each state are then addressed and handled by our tax professionals.
To file a corporate tax return, a profit and loss statement is usually furnished the tax professional. For certain small corporations, a corporate balance sheet is not required. But accurate data on income and expenses is needful. And the corporation must pay its employees on standard payroll system and pay quarterly payroll taxes to the IRS.
Most corporations have a bookkeeper and a competent bookkeeper knows what the tax professional needs and will get it to him. Not all corporations have a bookkeeper, and Torchlight Tax will do the bookkeeping for an additional fee. Some owners of small S Corps, work out the profit and loss on their own. This is fine if they keep good records and maintain a separate corporate bank account. A word of warning. If you are not good at records and bookkeeping, and especially if you are key to the sales and delivery of your corporation, hire a bookkeeper. I had one S-Corporation owner who successfully ran a $1.5 Million dollar annual revenue corporation, who did his own books. He spent two hours a day on the books, every day, all year long. And the books were a mess and had to be totally redone. How much more income and delivery could he have generated in two hours a day for a year?
To file your corporate tax return, we will need a copy of your prior year’s corporate tax return, a profit and loss statement, and a list of shareholders and their percentage of ownership. We will allocate the profit to shareholders and send them a K-1. In most cases, we will do individual tax return for the major shareholders, using this K-1 data. We do not have to do the individual major shareholders 1040 tax return, but usually they like us to. This is done after the completion of the corporate return.
There are two major types of corporations. One very common type of corporation is the S-Corporation. This is a small business corporation and is limited in size, income and assets. Its distinguishing characteristic is that it has “flow through” income. What this means is that any profit or loss is transferred to the shareholders’ tax return. It flows through. This characteristic goes along with no corporate income tax. Unlike the other type of corporation, the C-Corp, there is no federal S-Corporate income tax. This type of return is called an 1120-S. The corporation must file a return, but pays no federal income tax. A corresponding state tax return will, if required by state law, also be filed and may have a direct tax. A word of warning if you have an S-Corp - File you taxes on time. If you need an extension, file it on time. The minimum penalty for late filing is $195 per month per shareholder until it is filed.
Some Important Differentiating Factors to know about
To make it very simple, let’s consider the one-man S-Corporation. Suppose its profit is $100,000 dollars. Then $100,000 is reported to the owner in a form K-1 and he pays income tax on $100,000. Now, no one likes paying income tax on $100,000. BUT there is a big advantage here. Unlike the C-Corporation, this $100,000 is only taxed once. The C-Corp would have a separate corporate income tax, and then when the individual received a dividend he would be taxed as well. Sole proprietors and partnerships avoid this double tax as well, but on $100.000 profit would pay 15.3% or $15,300 for Social Security and Medicare. These are key reasons an S-Corp is so popular.
There is another, less well known advantage of an S-Corporation. Unlike C-Corps, losses flow through to the individual tax return as well. Now, losses are not good. But in some forming businesses, they do occur in the early years. Suppose you have a high-paying job, but would like to leave it some day and live off your S-Corp income. Maybe you lose money the first few years, but were expecting to. You are able to afford the losses as you still have the high-paying job. These losses reduce your personal income taxes. Later on, when the S-Corporation is making money, this profit will increase your personal income tax. But you have the profit to pay it. And if it does well, you have the option of quitting your high-paying job.
Now, a Limited Liability Company can elect to be an S-Corporation by filing a form with the IRS. This is another service offered by Torchlight Tax. This election can be filed into the past under certain circumstances. One other point. An S-Corp must pay its employees a fair wage. If you as owner are also working in the corporation, you must pay yourself. This pay is subject so social security and Medicare. But your profits paid as a dividend are not.
Partnership Tax Returns
Partnerships file a separate return, form 1065, and generally require accurate bookkeeping and file quarterly Payroll taxes. Good administrative paperwork is important. State partnership returns are also required in some states. Our training, expertise and the computer software we use at Torchlight allows us to do these anywhere in the US. The federal partnership tax return 1065 is done first. Then the state partnership tax returns is done, if needed, drawing needful data from the 1065. Then unique questions for each state partnership return are then addressed and handled by our EAs and CPAs.
To file a partnership tax return, a profit and loss statement is usually furnished by the tax professional. Accurate data on income and expenses is needful. And the partnership must pay its employees on standard payroll system and pay quarterly payroll taxes to the IRS.
Most partnerships have a bookkeeper and a competent bookkeeper knows what the tax professional needs and will get it to him. Not all partnerships have a bookkeeper, and Torchlight Tax will do the bookkeeping needed to file the IRS Form 1065 for an additional fee. Some partners work out the profit and loss on their own. This fine if they keep good records and maintain a separate partnership bank account. A word of warning. If you are not good at records and bookkeeping, and especially if you are key to the sales and delivery of your partnership, hire a bookkeeper. Our bookkeeper at Torchlight Tax would be glad to handle your bookkeeping. Bookkeepers are usually less expensive than high producing partners, and they usually do a better job on the books.
To file your tax return, we will need a copy of your prior years partnership tax return 1065, any prior state partnership return, a profit and loss statement, a list of partners and their percentage of ownership. We will allocate the profit to the partners and send them a K-1 they need to file their personal 1040 tax return. In most cases, we will do individual 1040 tax return for the major partners at the same time, using the k-1 data from the partnership return. We do not have to do the individual major partners’ 1040 tax returns, but usually they like us to. This is done after the completion of the partnership 1040 return.
According to the IRS:
- Partnerships file Form 1065, U.S. Return of Partnership Income, to report income and expenses
- A partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Generally, the partnership is required to prepare and give partners a Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.
- The partners report the information from the K-1 on their own returns and pay any taxes due, including estimated taxes
How to Pay Estimated Tax
Because partners are not employees of the partnership, no withholding is taken out of their distributions to pay the income and self-employment taxes on their Forms 1040. The partners may need to pay estimated tax payments using Form 1040-ES.
There are five ways to pay estimated tax:
- Credit an overpayment on your 2012 return to your 2013 estimated tax
- Send in your payment (check or money order) with a payment voucher from Form 1040-ES
- Pay electronically using the Electronic Federal Tax Payment System (EFTPS)
- Pay by electronic funds withdrawal (EFW) if you are filing Form 1040 electronically
- Pay by credit or debit card using a pay-by-phone system or the Internet
Our expertise with the taxation of U.S residents working abroad and foreign citizens working in the U.S. allows us to competently handle the needed tax returns and minimize the tax liability and maximize any possible refund.
This area requires much trust between a client and his tax preparer. Being worthy of this trust is the priority with the Torchlight Tax team.
If you are considering using Torchlight for your international taxes, contact us for a free consultation. This can be done in person, on the phone, or even a video chat.
S-Corp = March 15
C-Corp = April 15