Accounting News and Notes

Atlanta CPA: Incorporating in Georgia: Convert your Georgia C Corporation/LLC to an S Corporation

More Georgia based businesses are incorporating as an Limited Liability Company (LLC) because of the ease of the initial set up of the business entity. However, frequently this may not be the best “tax choice” for the business as an C Corporation is subject first to taxes at the corporate level initially and then the profits are taxed again at the personal level when these profits are paid out to the company’s respective shareholders/stockholders. C Corporations were once much more popular as an entity choice but as consumers and entrepreneurs became more aware and informed, C Corporations are much less pursued as a viable option as business owners sought to legally avoid the “double taxation” exposure of C Corporations as they are taxed first at the corporate level and then again at the personal level when monies are paid out of the corporation to the companies’ respective owners.

Though being an S Corporation is note ideal for all business it is often a good fit for the following types of business. This list is not intended to be comprehensive and it is prudent to work closely with your CPA in making this election.

-Computer technicians such as contractors, retailers, repairs, programmers, etc.

-Sales Representatives including residential and commercial real estate agents, brokers, including those of most all types and territories.

-Distribution companies, resellers, wholesalers, and those in the distribution chain of a product of service.

-Service companies including consultants of all types, single owner physicians, dentists, doctors, chiropractors, etc.

-Trade Contractors such as builders, painters, landscapers, electricians, plumbers, etc.

-Retail shops such as boutiques, restaurants, clothing stores, furniture, appliances, video equipment, etc.

Taxation of S Corporations

There is no income tax paid by as S Corporation when the annual tax return is filed to the IRS. However, as a part of the corporate return which is prepared, a Form 1120S, there is an attached schedule which shows each owners respective ownership percentage and via a Form K-1 for which each shareholder should reflect on their personal return. K-1 profits, losses, and shareholder distributions are all required by tax law to be issued based upon the each shareholders ownership percentage. In order for losses to be deductible a shareholder has to have a positive tax basis, which is a component of past profits, losses, and loans to and from the business. If a shareholder has no basis to cover losses reported on a K-1, they are by tax law considered to be “suspended losses” and can be rolled forward to future years when the shareholder has positive basis, which can be created by future years profits or the shareholder loaning money to the business.

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.

The rules of being an S Corporation are only four and many businesses will qualify. To be an S Corporation you must have:

• Have a December 31st year-end.
• Have less than 100 shareholders.
• Shareholders have to be U.S. citizens or resident aliens.
• Only one class of stock

For LLC’s that change from an LLC for legal purposes to an S Corporation for tax purposes, the LLC remains an LLC with the Georgia Secretary of State along with all other legal purposes. Thus, your LLC makes solely a tax election which affects none of the other contracts, licenses, trademarks, legal filings, and legal obligations of the LLC.

Contact HIS CPA PC (A Christian CPA Firm) today.

To learn more about tax entities and the taxation thereof visit http://www.hiscpa.com/article2.html There you will also discover a wide host of resources for American Entrepreneurs.

John Dillard is an Christian Speaker/Author and Certified Public Accountant in Duluth, GA. To See how he takes Christ along with him to work visit http://www.hiscpa.com/ and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and a Voice of One: Nehemiah’s Prayer or call John Dillard CPA today at 770.814.9304 (All Rights Reserved) Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!

www.HisCPA.com  IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate and Personal Income Tax Returns, Part-time CFO, Virtual Controller, Business Planning, Offer in Compromise, Back Taxes, Bookkeeping.

Incorporating in Georgia: Atlanta CPA on LLC’s, LLP’s, and Partnerships…A Flow Through Entities Menu

Limited Liability Corporations (LLCs), Limited Liability Partnerships (LLPs) and General Partnerships are all taxed in the same manner. Choosing one of these types as a business entity would be a poor selection for a business such as a distribution business, as they will all result in higher taxes with no additional advantages for the distributor.

Generally a business which is an LLC, LLP, or Partnership will pay higher taxes with no additional advantages as opposed to being an S Corporation. A Limited Partnership is also an option that could be explored when certain partners want to limit their liability and exposure.

Below are some of the reasons you might want select an LLC or LLP as your entity choice:

If you were a lawyer or physician’s practice then all of the partners’ personal assets are at risk if one partner does something wrong, while if an LLC or an LLP, only the offending partners personal assets would be at risk. This is because of the professional service statutes for these type of  professionals, but these rules do not relate to a distribution business, for example. If you were an real estate developer and you had a piece of land that had dramatically increased in value, you can transfer that property to an LLC, LLP, or Partnership without having to pay any capital gains tax. Also with these entity types, you can take shareholder distributions that are not based upon ownership, whereas in an S or a C Corporation they have to be. Again, this does not relate to a distributor.

If you have set up as one of these entity types, it might be advantageous to consider a tax-free merger into an S Corporation which will allow you to retain all the legal contracts, etc. of your present entity while switching to the tax advantages of being an S Corporation.

To read more and see which entity type is best for you visit http://www.hiscpa.com/article2.html

www.HisCPA.com Incorporating in Georgia, Setting up an LLC in Georgia, Setting up an S Corporation in Georgia, Georgia Entity Selection, Converting Your GA LLC to an S Corporation, Converting Your GA C Corporation to an S Corporation, GA LLC, GA S Corporation and Converting Your Georgia Business to an S Corporation

Duluth/Gwinnett CPA: Put our 444 Months of Experience to Work for Your Atlanta/Gwinnett Business

Put our 444 months of experience as a CPA for Gwinnett & Atlanta to work for your business including:

-Residential and Home Contractors.

-General and Sub Contractors.

-Independent Contractors, Proprietorship’s, S Corporations, LLC’s and C Corporations.

-Roofers, Landscapers, Painters, Framers, Window Installers and Concrete Contractors.

-Plumbers, Electricians, Carpet Companies, Hardwood and Flooring Companies.

-Granite Contractors, Kitchen Cabinet Contractors, HVAC Companies and Insulation Companies.

-Residential & Commercial Home Builders.

-Foundations & Fire Proofing.

-Wells & Sprinkler Systems.

-Bathtub Refinishing, Vacuum & Sound Systems.

-Countertops and Glass/Window Installers.

-Scaffolding and Swimming Pools.

-Waterproofing, Tinted Glass and Movers.

- Anesthesiologist.

- Cardiologist & Vascular Surgeons.

-Emergency Medicine, Internist, General Practitioners and Pediatricians.

-Endocrinologist, Family Practitioner and Gastroenterologist.

-Geriatric Medicine, Hematologist and Oncology.

-Surgeons and Neurologist.

-OB/GYN, Ophthalmologist and Optometrist.

-Orthopedic Surgeons, Pathologist and Pediatricians.

-Dermatologist, Physiatrist and Pulmonologist.

-Radiologist and  Rheumatologist.

-Dentists, Physical Therapist and Chiropractors.

-M.D.’s, D.O.’s & P.A.’s.

We listen attentively to our Gwinnett & Metro Atlanta clients assisting them with:

-Preparation of Business & Personal Income Tax Returns.

-Financial Statements, Bookkeeping, QuickBooks Set-Up & Payroll Administration.

-IRS/Tax Representation, IRS Penalty Abatement, Back Taxes & Offer in Compromise.

-Tax Compliance & Review/Amending Prior Returns.

-Tax Planning, Tax Mitigation & Tax Strategies.

-Business Set-up, Entity Selection, Filing for Your S Corporation Election & Converting Your LLC to an S Corporation.

-Virtual CFO/Controller, Strategic Planning, Business Consulting & Mergers and Acquisitions.

Call us today

Duluth Income Tax Preparation

Duluth Corporate & Personal Income Taxes

Duluth Financial Statements

Duluth IRS Representation, Back Taxes & Offer in Compromiseay for a free initial consultation.

Duluth/Gwinnett CPA on S Corporations, LLC’s & Partnerships

Flow/Pass-Through Entities

S Corporations, partnerships and Limited Liability Companies (LLC’s) are all considered pass-through entities. Deductions on these pass-through entities are sent through to the partners or shareholders and then reflected on the individual owner’s personal return or Form 1040. A single member LLC will reflect their business operating results on their personal schedule C as part of their personal return whereas a multiple person LLC will:

-If being taxed as a partnership file IRS Form 1065 and then receive a K-1 reflecting an individual owners respective share of profits, which is then reflected on an owners personal income tax return.

-If being taxed as an S Corporation file IRS Form 1120S and then receive a K-1 reflecting an individual owners respective share of profits, which is then reflected on an owners personal income tax return. LLC’s can do a tax election if they follow the rules and guidelines thereof converting the LLC to an S Corporation for tax purposes, while remaining an LLC for legal purposes.

Information Returns

You will receive information returns for pass-through entities such as:

Partnerships and S Corporations will issue Schedule K-1s. These are used to list items and amounts you have to report and helps you to find the schedule of the personal return and what lines to use.

As an Atlanta CPA I have learned that selecting the right entity is one of the most important financial decisions you will ever make in the life of your business. To make sure you incorporate well see http://www.hiscpa.com/incorporating-articles.html

www.HisCPA.com A Christian CPA Firm in Duluth GA Proudly Serving Alpharetta, Suwanee, Lawrenceville, Norcross, Atlanta, Gwinnett, Johns Creek, Roswell, Forsyth, Flowery Branch, Buford, Dunwoody, Snellville, Lilburn & Grayson as an Award Winning CPA

S Corporations Duluth/Gwinnett CPA: General Instructions for Filing as an S Corporation

Purpose of Form

Form 1120S for all S Corporations should be used to report the following things: income, gains, losses, deductions, credits, etc. for a domestic corporation as well as any other kind of entity in a tax year that calls itself an S Corporation.  An S Corporation can be either a C Corporation that elects to be taxed as an S Corporation or an LLC (Limited Liability Company) that elects to be treated as an S Corporation.

Who Has To File

There are a few reasons why a corporation or entity would have to file with Form 1120S, they are revealed below:

-If the corporation claimed to be an S Corporation through Form 2553

- The IRS accepted that election

- The claim and election remain in effect for the current tax year and you have not either revoked the election or failed during the current tax year to continue to meet S Corporation requirements.

Once you have filed Form 2553 the IRS should send you a note of confirmation that your election was received and that it is acknowledged and accepted. If you never received such a letter or note within sixty days you should contact the IRS and ask about your election letter by calling 1-800-829-4933.  Form 1120S should not be filed for tax years before the election was made and accepted.  I suggest that all companies keep a permanent copy of the S Corporation election and acceptance in their corporate book along with where their incorporation papers are maintained.

There is a possibility that if you failed to file Form 2553 on time, that the IRS may give you time for a late election. Instructions for late elections can be found on the instructions for Form 2553.

www.HisCPA.com A Christian CPA Firm in Duluth GA Proudly Serving Alpharetta, Suwanee, Lawrenceville, Norcross, Atlanta, Gwinnett, North Fulton, Johns Creek, Roswell, Forsyth, Flowery Branch, Buford, Dunwoody, Snellville, Lilburn & Grayson as an Award Winning CPA

S Corporations: Duluth/Gwinnett CPA on New Things with S Corporations

Merchant Card and Third Party Payments

The IRS has recently canceled the requirement to file the merchant card and the third party networks of a corporation on that corporation’s return. Under this new method, you should report sales from business operations and gross receipts as the instructions say to do so in line 1a and line 1d.

Cost of Goods Sold

The IRS has gotten rid of Schedule A (The Cost of Goods Sold) from their 1120S form. The new place to configure and file cost of goods is on 1125-A, newly named, Cost of Goods Sold.

Matters of Changes in Address

The IRS has created a new form, Form 8822—Business, for businesses to use when there is a change of address. The instructions to fill out this form can be found in Item H.

Form 1099

The IRS has included new questions labeled 10a and 10b in relation to Form 1099.

Food Inventory Contributions

Food contributions made after December 31st, 2011 are considered expired and will not be counted for deduction. More information on food contribution deductions and related issues can be found in Section 170.

Upcoming Developments

The IRS has recently generated a new page where people can learn about forms and instructions and about upcoming future developments. www.irs.gov/form1120s  All tax bulletins will be released on this page.

Serving Duluth, Atlanta, Suwanee, Lawrenceville, Snellville, Johns Creek, Buford, Snellville, Grayson, Lilburn, Tucker, Norcross, Alpharetta & Beyond as a Faith Based CPA Firm.

Corporations: Duluth/Gwinnett CPA on Estimated Tax Payments

If a corporation’s estimated taxes equate to $500 or more from tax on built in gains, excess net passive income tax, and the corporations investment credit recapture tax.

The estimated tax a corporation has to pay is estimated by the result of the sum of all taxes shown on the initial return of that tax year. Take note that if the tax year did not meet 12 months then your estimated tax must be measured by the first point.

Estimated tax is unique in that it can be paid in four separate installments of equal cost. If a corporation needs to lower one of these four installments then they can use the IRS annualized income installment methods. The corporation can also use seasonal installment methods. Regardless of which method you use, both the IRS and the state of Georgia require you to make pay your taxes as you do. For all of our S Corporation clients we work closely with them on tax planning to ensure that all of their taxes are paid via payroll withholdings so that they do not also have to make estimated tax payments.

The payment dates for a corporation’s four installments are April 17, June 15, September 17, and January 15 (after the close of your corporate tax year). Along with all tax related deadlines, if the due date falls on a day of a holiday, Saturday, or Sunday, then the due date is the next non-holiday or normal weekday.  The corporation is required to submit these payments via online transfer. If you have questions about the penalties related to estimated tax or any other questions, refer to IRS Form 2220.

S Corporations: Duluth/Gwinnett CPA on Selecting an Accounting Period

All totals and incomes for a corporation must be figured for each tax year. By definition, a tax year is the annual period in which a corporation keeps its tax records and reports its income and expenses. Generally all S Corporations will elect and have a calendar year as their tax year with a stub year (the date a business is incorporated until the end of that tax year) as the first year a corporate tax return for either a C Corporation or an S Corporation.

S Corporations must file their returns based on these tax years:

• The tax year ending on December 31^st
• A business year considered natural
• Any 52-53 week period in which the corporation establishes a business purpose

New S Corporations are required to elect to be an S Corporation by the timely filing of r Form 2553 (Election to be a Small Business Corporation). If a company is a C Corporation it will use IRS Form 1120 and if an S Corporation IRS Form 1120S. Please note that corporate income tax returns are due March 15th for the preceding calendar year and that if you need more time you can gain an additional six months by the filing of the IRS Corporate Extension Form 7004. Both the IRS and the state of Georgia require taxpayers to pay their taxes as they become due and that an extension to file is not an extension to pay.

Choosing an Entity Type for Your New Georgia Business Your initial choice of entity is perhaps the most important tax, financial and legal decision you might ever reach. Being well versed in these areas is essential to a wise and prudent decision. Visit http://www.hiscpa.com/article2.html

Tax Effects of Entity Choice when Incorporating Your New Georgia Business Carefully considering the tax effects of your entity choice is essential to getting your business off on the right foot. Being careful to avoid, if at all possible, the double taxation of C Corporations and then selecting the right entity for your business from both a tax and legal perspective is critical. See http://www.hiscpa.com/article6.html

Contact HIS CPA PC (A Christian CPA Firm) today.

www.HisCPA.com A Christian CPA Firm in Duluth GA Proudly Serving Suwanee, Lawrenceville, Snellville, Lilburn, Duluth, Norcross, Peachtree Corners, Atlanta, Gwinnett, Fulton, Johns Creek, Roswell, Forsyth, Flowery Branch, Buford, Cumming, Dunwoody, Alpharetta, Dunwoody, Sandy Springs and Tucker as a Faith Based CPA Firm

S Corporations: Duluth/Gwinnett CPA On New Things with S Corporations

Merchant Card and Third Party Payments

The IRS has recently canceled the requirement to file the merchant card and the third party networks of a corporation on that corporation’s return. Under this new method, you should report sales from business operations and gross receipts as the instructions say to do so in line 1a and line 1d.

Cost of Goods Sold The IRS has gotten rid of Schedule A (The Cost of Goods Sold) from their 1120S form. The new place to configure and file cost of goods is on 1125-A, newly named, Cost of Goods Sold.

Matters of Changes in Address The IRS has created a new form, Form 8822—Business, for businesses to use when there is a change of address.

Form 1099 The IRS has included new questions labeled 10a and 10b in relation to Form 1099.

Food Inventory Contributions: Food contributions made after December 31st, 2011 are considered expired and will not be counted for deduction. More information on food contribution deductions and related issues can be found in Section 170.

Upcoming IRS Tax Announcement & Developments The IRS has recently generated a new page where people can learn about forms and instructions and about upcoming future developments at www.irs.gov/form1120S  .All bulletins will be released on this page.

S Corporations: Duluth/Gwinnett CPA Explains Electronic Filing

Most corporations are permitted file  their 1120S forms and forms related as well as schedules and attachments via the IRS E-File Program or Electronic Filing as well as their corporate extensions for their business..

Although this is true, there are a few exceptions, these following are exceptions and therefore cannot file electronically normally:

 Returns for prior periods when filing for old back late filed tax returns.

 Returns with requests for overpayment to be applied from another account (not a estimated tax payment that was originally done and intended to be applied against the company).

Some business’s on the other hand are required to file electronically. If a corporation holds assets over $10 million then they are generally required to turn in their Form 1120S electronically, even if the first of the above exceptions apply. Some corporations can request to opt out of electronic filing by requesting a waiver from the IRS.

You can visit www.irs.gov/efile to figure out more about electronic filing.