The tax rule for S Corporations, LLC and partnership are the same under the tax code.  The due date for S Corporation taxes for the financial year 2018 -2019 was March 15, 2019.  However, one can opt for extension of six months by filing Form 7004. With such extended option, now the due date for S Corporation taxes is September 15 2019.

S Corporation exists in order to avoid double-taxation on earned income.  S Corporations pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S Corporation report the flow-through of income and losses on their personal tax returns, and are assessed tax at their individual income tax rates.

What If You Miss the Tax Final Filing Date?

If S Corporation owes taxes from a 1040 or 1120 Form that is filed after 15th April (without filing for the extension), the penalty for the S Corporation is 5% of the taxes owed for every  month from the tax return is late for filing, and can exceed up to a penalty of 25% of the tax due.  If S Corporation is in financial difficulties, and is not able to make the tax payment then it needs to apply for an installment option.  With that and it makes an agreement with IRS stating that it would make the tax payment in a periodical installment.  The S Corporation can e-file the tax and the IRS will accept e-filed tax returns up to 15th October 2019.

Forms and S Corporations

Below is a list of forms to be filed by S Corporation before 15th September 2019.

  • Form 1120-S for The United States Income tax for S Corporations
  • Schedule K-1 for Shareholder’s share of Income, Deductions, credits etc.
  • Form 940 to be filed for employers annual Federal Unemployment Tax Return (FUTA)
  • Form 941 for employers quarterly federal tax return
  • Form 1099 for non-employment compensation
  • Form W2 for the wages and the tax statement

The S Corporation needs to submit supporting documents for each form or schedule as needed.

 

Advantages of S Corporation Taxes

  • S  Corporations avoids double taxation of corporate income
  • No self-employment taxes for S  Corporation net earnings
  • S  Corporation losses can reduce the owner’s taxes

 

Disadvantages of S Corporation Taxes

  • S Corporation to pay salaries to shareholders who work for the business.  That means taxes need to be withheld from the owner’s pay, payroll returns filed, and W-2 forms issued.
  • S Corporation status can be lost if it exceeds 100 shareholders, or if it takes on investors who are non-resident aliens, Corporations, or partnerships.
  • If the S Corporation used to be a C Corporation, the S Corporation may have to pay tax if it generates passive investment income or if it sells a highly appreciated asset that it acquired when it was a C Corporations.

 

File Form 2553 before the Due Date to maintain S Corporations status

 

  • If a newly formed Corporation wants to be an S Corporation from its date of in Corporation, the Corporation has to submit form 2553 to the IRS no later than two months and 15 days from the date of in Corporation.
  • If already existing C Corporation wants to become an S Corporation then it needs to submit Form 2553 any time during the current year and no later than two months and 15 days into the next year.
  • If the already existing Corporation that forgot to file Form 2553 and wants to request retroactive S Corporation status then it needs to submit Form 2553 no later than three years and 75 days from the date the owners intended for S Corporations status to take effect.  The shareholders will need to explain why they are late in filing the election.

 

In spite of possibilities to being audited for S Corporation are low, the IRS still tracks the K1 with companies’ EIN and further to W2 and from W2’s social security number to corresponding K-1.  Therefore if you do not have K-1 and W2 with corresponding values, the risk of being audited is increasing.  Consult with tax experts like IRS Audit Group to know your risk of being audited and be ready to face them with one of our representatives.  We are a team of IRS Attorneys, CPAs and Tax Attorneys with expertise in IRS Tax Audit representations.  Contact us: info@irs-audit-group.com/ 1-888-300-6670.