Accounting News and Notes

Duluth/Roswell/Atlanta CPA On Keeping Your Corporate Income Tax Simple

If your business is an S Corporation, there are no income taxes are paid with the corporate return. The profits of the business are reported on the personal tax return of the S corporation’s shareholders. As long as you pay yourself a reasonable salary, you may also take shareholder distributions out of the business that are devoid of FICA/Medicaid taxes. Another advantage of S Corporations is that if you have corporate losses, and you fund (you put the money in the business) those losses personally, then you can deduct those losses on your personal return. Any losses that are funded by the bank (a direct loan from the bank to the corporation) or by trade creditors are not deductible. Below is sample letter we might receive from a client looking to do tax planning for 2010.

The envelope with my personal 1040 and 500 has a cover sheet that says the 1040ES and 500ES vouchers should be in there too, but I can’t seem to find them anywhere in that packet.  Do you have PDFs of those you can email me? 

Below is my response: 

I suggest to all S Corporation clients that we do not use Estimated Tax Payments. An owner should report the K-1 profit, which is based upon their share of the business and not the amount of their shareholder distributions. This is a common misnomer about S Corporations and often leads to confusion for the new business owner. To that end it is best to remember that you pay taxes on the profits when you make them and not when you take them. For example generally speaking if your business nets $100,000 and you are the sole owner, you will pay taxes on $100,0000 whether you take zero dollar of shareholder distributions, a $100,000 or any number in between. Thus if you were to have a $100,000 profit in any given year and take no distributions then you would be able, absent any other issues, to take shareholder distributions in subsequent years with no additional tax responsibility as these monies would have already been taxed. 

I suggest that you get to me an estimate of your 2010 profit before any salaries or distributions to you and then I can tax plan for accordingly and advise you as to what you should have withheld from your paycheck so that you do not also have to pay quarterly estimated payments.

Proverbs 3:5  Trust in the LORD with all your heart and lean not on your own understanding;

John Dillard, CPA of His CPA, PC (An Atlanta Christian CPA firm) 1940 Woods River Lane, Duluth, GA 30097  Phone 770-814-9304   http://www.hiscpa.com/    http://www.john-dillard.com/ To retain John Dillard CPA (An Atlanta Christian Speaker/Author) for your business group or church congregation, you can contact him today at 770.814.9304 

His CPA PC…A Christian Atlanta CPA Firm: Never Underestimate the Long-Term Benefits 

Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!

Related posts:

1. Duluth/Gwinnett/Atlanta CPA Advises Atlanta S Corporation Owners on Deducting Tax Losses
2. CPA Serving Norcross/Alpharetta/Roswell Advises Atlanta Business Owners on Setting Up or Converting Your Georgia Business to an S Corporation
3. Atlanta CPA on S Corporations…Is the S Corporation Status Election the Best for Your Business
4. Christian CPA Helping Business Owners File Their Corporate Income Taxes
5. Atlanta CPA Advises on How to Determine What Your Withholding Should be for S Corporation Owners

This entry was posted on Friday, April 9th, 2010 at 3:32 pm and is filed under 2010 Tax Filing Deadlines, Atlanta Corporate Income Tax & S Corporation Return, Personal Income Taxes, Small Business Consulting/Resources for Atlanta/Gwinnett Entrepreneurs.
Tags: 2010 Tax Planning, Christian CPA Firm, Duluth/Gwinnett CPA, Form 1120S, Georgia Form 500ES, IRS Form 1040ES, Proverbs 3:5, Roswell CPA. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.