Sunday, February 15, 2009
Subchapter S Corporations A tax election only; this election enables the shareholder to treat the earnings and profits as distributions and have them pass through directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay him/herself wages, and must meet standards of "reasonable compensation". This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount. Federal Tax Forms for Subchapter S Corporations (only a partial list and some may not apply) · Form 1120S: Income Tax Return for S Corporation · 1120S K-1: Shareholder's Share of Income, Credit, Deductions · Form 4625 Depreciation · Employment Tax Forms · Form 1040: Individual Income Tax Return · Schedule E: Supplemental Income and Loss · Schedule SE: Self-Employment Tax · Form 1040-ES: Estimated Tax for Individuals Other forms as needed for capital gains, sale of assets, alternative minimum tax, etc.