David M.Green Bookkeeping and Tax Service -
RSS

Recent Posts

Standard Mileage Rates for 2018 Up from Rates for 2017
Senate Passes Tax Reform Bill
IRS Announces 2018 Pension Plan Limitations; 401(k) Contribution Limit Increases to $18,500 for 2018
Like Harvey, Retirement Plans Can Make Loans, Hardship Distributions to Victims of Hurricane Irma
IRS Has Refunds Totaling $1 Billion for People Who Have Not Filed a 2013 Federal Income Tax Return
powered by

My Blog

S Corporation - What are the Benefits???

An S Corporation or S Corp is an eligible domestic corporation that has elected to be treated as an S Corporation for tax purposes. S Corporations avoid double taxation on corporate income because cor...porate income, losses, deductions and credits are passed through to the shareholders. Shareholders of the S corporation report the income and losses on their personal tax returns. However, S Corps are responsible for tax on certain built-in gains and passive income at the entity level.

Self-Employment tax

Undistributed taxable income of the S corporation that is passed through to its shareholders is not treated as earnings from self- employment (Rev. Rul. 59-221, 1959-1 C.B. 225) and is therefore not subject to self-employment tax.

It is however required that a shareholder who performs service for an S Corp should receive “reasonable compensation”. If a shareholder receives “dividends” or other distribution in lieu of reasonable compensation for services performed for the S corporation, the amounts received may be deemed to be wages requiring the payment of payroll taxes and the filing of payroll returns. (Rev. Rul. 74-44, 1974-1 C.B. 287).

Shareholder loss limitations

As mentioned above, shareholders of an S Corp report income and losses from the S Corp on their personal returns. There are three limitations to the amount of the flow-through loss that can be claimed by the shareholder:

1. Stock and Debt Basis Limitations
2. At Risk Limitations
3. Passive Activity Loss Limitations

The shareholder has to meet each limitation in the order presented to be able to claim the loss. (I will be addressing the S Corp shareholder stock and debt basis in a future post).

Taxes

Although an S Corp is generally exempt from federal income tax, there are circumstances where the S Corp may have a tax liability. This is usually the case if it was previously a C Corp and has:

• Built-in gains
• Excess net passive income

Filing Penalties

An S Corp may be subject to penalties for:

• Late filing – a charge for each month or part of a month (up to 12 months) multiplied by the number of shareholders during any part of the year for which the return is due. (26 U.S. Code § 6699).
• Failure to furnish K-1 to shareholders. (26 U.S. Code § 6722 (a))

0 Comments to S Corporation - What are the Benefits???:

Comments RSS

Add a Comment

Your Name:
Email Address: (Required)
Website:
Comment:
Make your text bigger, bold, italic and more with HTML tags. We'll show you how.
Post Comment