How to Follow the Tax Laws for Subchapter S Corporations

Posted by Anonymous , 9/4/2007 Tags:FollowTaxLawsSubchapterCorporations
Post By :
Anonymous
Rate:
Vote

How to Follow the Tax Laws for Subchapter S Corporations

Introduction

The IRS has devised various tax strategies to help business owners preserve as much of their capital as possible. An S corporation is a business that is taxed under Subchapter S of the IRS code.

Instructions

Difficulty: Easy

Recognize S Corporations

Steps

1

Step One

Recognize that if a company is taxed under the more common Subchapter C, the company itself pays its taxes. However, companies on a Subchapter S plan allow the tax liabilities of the company to pass through to the shareholders, usually called partners.
2

Step Two

Know that even though profits and tax liability are passed through to the partners of a company taxed under Subchapter S, these same partners are still shielded from the company's other liabilities in the same way that shareholders in a C corporation are protected.
3

Step Three

Look at who pays the taxes to know if a corporation is taxed under Subchapter S. If the company files and pays taxes under its own taxpayer identification number, then that company is not being taxed under Subchapter S.

Choose the Right Format for Your Business

Steps

1

Step One

Start with the right taxation strategy for your corporation if you are building a business. Changing tax strategies later in the game may involve costly legal or accountant fees that can be avoided with a bit of good advice up front.
2

Step Two

Know that S corporations often work best with just a few responsible partners or shareholders, since each can count on the other to file taxes in a timely manner.
3

Step Three

Understand that when you choose to incorporate, you will have a plethora of complicated decisions to make. This does not mean, however, that you should simply choose what's easiest for now, and put off more demanding decisions for when you have more time to understand them.

Overall Tips & Warnings

  • Invest in some good, user-friendly business books that address the concerns of every business owner and save you time and headaches.
  • Most S corporations file taxes using Schedule 1120S, which can be downloaded from the IRS Web site (see Resources, below).
  • Set aside several hours to educate yourself on the basics of S corporations. If you want to explore further, consider signing up for a business course at your local community college or university extension program.
  • Don't leave every decision to a tax professional. Have him fully explain what decision would be best for your company and why.
  • Running a business can leave you vulnerable to more potential liability than simply working for someone else. Know how to protect yourself by learning about S corporations and by consulting a tax professional if you are unclear on any business concepts.

Overall Things You'll Need

  • Computer with Internet access
Tools: |