Are you incorporated as an S Corporation? Your income tax return deadline is right around the corner! March 15th is the deadline for S Corps to file their annual tax returns.
What do S Corporations need to file?
As mentioned earlier, March 15th is the deadline for filing an annual tax return as an S Corp. Entrepreneurs need to include the following documents during the filing process.
- Form 1120S. This is the form for the U.S. Income Tax Return for an S Corporation. It outlines the financial activity of the S Corp during the last calendar year.
- Schedule K-1. Also known as Form 1065, this form covers the share of income, deductions, and credits from each partner in the S Corporation.
Can I get a filing extension for an S Corporation?
Let’s say, for instance, that you are unable to filing an S Corp annual tax return by its March deadline. Is it possible to get an extension? The short answer is yes. You would need to file Form 7004. This is an Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. Specify that this application is for Form 1120S, then answer a few additional questions about the S Corp before requesting the tax extension deadline.
Now that you have an understanding of your S Corp tax filing deadline, you may be curious about the entity. What if you have not incorporated as an S Corporation, but are interested in switching entity formations? What kinds of benefits come with an S Corp election?
Benefits of S Corporation election.
As a brief definition refresher, an S Corp draws its designation from subsection S of the IRS tax code. Doing this means an S Corp avoids facing double taxation. This is when an incorporated business pays tax on any income it earns, plus tax on income the business owner earns from working for the corporation.
By opting for an S Corp election, the company avoids paying federal and state income tax. Instead, the income, deductions, credits, and losses pass through to the business owners. They are then responsible for reporting the taxable activity of the company on their personal income tax returns.
What additional benefits come with electing S Corp status?
- Pass through taxes. As mentioned above, your corporation would be able to legally avoid double taxation on the business and its shareholders.
- Asset protection. Much like incorporating as an LLC, S Corps provide entities with liability protection. This creates a separation between personal and professional assets in the event of an unforeseen circumstance, like a lawsuit, that negatively impacts the business.
- Reduces self-employment tax liabilities. S Corporation shareholders may act as employees and receive a salary and dividends. This helps reduce self-employment tax liabilities.
- Simplified ownership transfers. What happens if you decide to sell an S Corporation? You may sell as the entity without incurring new tax liabilities. This is opposed to other entity structures, like LLCs, that may need to be restructured if more than fifty percent of their interest is transferred.
Ready to elect S Corporation status?
We’re ready to assist your existing business in making this S Corp election. However, that in order to qualify for S Corp status your corporation must follow a few eligibility requirements. The corporation needs to have less than 100 shareholders. The company may also only issue one class of stock. Then, you may file for S Corp status.
Remember: once you have elected an S Corporation, you must stay up to date with your annual tax return filing deadlines!