Tax Services for S Corporations in Walnut Creek


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Overview of S Corporations

S Corporations generally avoid the double taxation that most regular C corporatiol ns are subject to. S corporations allow to pass through corporate income, losses, deductions, and credits the shareholders. The shareholders will then report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. Therefore, the flow-through nature of the s-corporations resemble partnership structures. The S Corporations, however, offer the added benefit of limited liability protection.

To qualify for S corporation, the corporation must meet certain requirements:

  • Be a domestic corporation
  • Have only allowable shareholders
    • including individuals, certain trusts, and estates and
    • may not include partnerships, corporations or non-resident alien shareholders
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

To become an S corporation, form 2553 must be completed and submitted on a timely basis.

The S corporation rules are contained in Subchapter S of Chapter 1 of the Internal Revenue Code (sections 1361 through 1379). S status combines the legal environment of C corporations with U.S. federal income taxation similar to that of partnerships.

Tax Preparation for S Corporations

Tax return for S corporations are prepared on the IRS form 1120s. Multiple schedules and workmsheets accompany the main 1120S form, including:

  • Schedule K: Shareholders’ Prorata Share of Items
  • Schedule L: Balance Sheet
  • Schedule M1: Reconciliation of Income per Books to Income per Return
  • Schedule M2: Analysis of Accumulated Adjustments Account
  • Shareholders’ Basis Computation

Bookkeeping for S Corporations

Having a sound accounting system for your S Corporation is essential not only for tax purposes, but for managing and growing your business effectively and consistently. Recording transactions properly and generating the reports you need for your business will make the operations of your business both effective and efficient.

Tax Planning for S Corporations

There are significant tax planning strategies that s corporations can utilize to minimize the overall taxes of the shareholders. Although s corporations are not subject to federal taxes, there could be state tax liabilities. Additionally, the tax liability of the individual shareholders can be reduced significantly by proper planning, including:

  • More than 2% shareholder benefits
  • Retirement planning
  • Valuation of S corporations
  • Reasonable compensation for s corporations
  • Split of income between the W2 and K1 for the shareholders

 

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