November 5, 2020
Avoid These Mistakes When Filing Your S-Corp Taxes
One of the most painful and costly mistakes you can make when running an S-Corp is failing to either file your reports, or file extensions for your reports. Fees are often paid according to the number of shareholders in your S-Corp. Because these penalties are accrued monthly and have a minimum fee for each penalty period, they add up quickly.
A few great ways to avoid these consequences include:
- Mark the dates for each filing type on your calendar and set a few reminders in advance
- Record all expenses as your company spends money
- Determine your “State of Nexus” or where the S-Corp is going to be based (some states may override your expectations, like Tennessee)
- Keep separate bank accounts for personal and business funds
Other common mistakes revolve around leaving money on the table when filing your taxes. As a business owner, part of how you keep your business healthy is investing funds back into the business. If you’re doing this part, but neglecting to count all of your deductions, you’re still paying income taxes on the money that you’ve reinvested into the business.
You can ensure there’s minimal money left on the table by:
- Reviewing your transactions as they are stored in your bookkeeping software
- Categorizing transactions based on their role in your business
- Document any personal funds you’ve spent on the business—these are normally considered “Shareholder Loans” and may change your tax burden at the end of each year
- Keep a balance sheet
Author’s Note: You may be able to write off some of the business’ losses to reduce your tax burden—your “Shareholder Basis” is one of the largest factors in determining if you can do this and how much you can write off if you’re allowed to do so.
At the end of each year, many businesses choose to reevaluate their tax strategies. This happens for many reasons, not the least of which being their ability to adjust tax liabilities based on their plans for the year or coming years. Amortization is one common method that S-Corps use to strategize. “Will you write this asset off all in one year, or will you space it out?”
With so many details to take into consideration, we understand this may be overwhelming. If you’re already a Formations customer, we take care of everything for you. We take care of your payroll, issue your W2, reconcile your books on a day-to-day basis, and file your S-Corp documents.
Not a Formations customer?
Have some unanswered questions about preparing your tax return for this year? Schedule a free consultation with one of our tax experts! We are here to help!