Tax Season is a very busy time in the tax and accounting world, so much to know about tax deadlines, regulations, and filing obligations. If you are new to S-Corporations or have been in this tax structure for some time, knowing your business obligations early will help reduce unneeded stress and panic.
To help you navigate the tax season, here are some of the FAQs about S-Corp tax filing, arranged by categories
Expenses:
- Is there a checklist of expenses or deductions that people may forget to include?
You can read our blog post about: What is a business expense, and Tax Deductions You Can Enjoy as an S-Corp
- As a Formations customer, where can we find information that Formations have in the record about us (expenses, any info that is due to submit for change by 2/15/21) is matching the info we have?
You will find this on your yearly financials sent to you in the month of January. These summaries also contain detail of your year account transactions for you to review the way we have classified them. Your CSM can also review these with you by scheduling a meeting on their calendar.
Tax Liability:
- As an S-Corp owner, do we pay taxes on our personal returns for our profits?
Yes, as an S-Corp owner both your profits and w2 are taxed on the personal level. The great news about the profits is they are not subject to FICA taxes. Most S-Corp owners are also able to get the new 2018 and beyond Qualified Small Business Income Deduction (QBID) if their business is allowable for this.
- If we extend the business tax for September 15, can we extend our personal tax file as well?
Not only you can, but you must do it. You cannot complete your personal Tax Return (1040) without first completing your business tax return.
- If I file for an extension, Do I still need to pay the taxes I owe by April 15?
Yes, you need to pay any tax due by April 15 to avoid penalties and interest. An extension to file is not an extension to pay, and there is no way to extend the balance due amounts. You can go on a payment plan (see below)
- How will we know the amount of our tax liability due by April 15?
You will need to work with the preparer of your personal tax return. The amount of tax owed is partially due to your business, but also comes from all other sources. If you need information about your profit and wage, we can provide this to you so that your personal tax professional can get you estimates early to plan for cash flow.
- Is there an option to do a payment plan on any owed taxes for the April 15 deadline?
Yes, you can apply for a payment plan for any tax owed if you can not pay by the deadline. It does not avoid the penalty of not paying on time, and there is still interest at a reduced rate. Payment plans will be handled by your personal tax professional, and they give you up to 5 years to pay off the balance due – but you should pay it off ASAP to reduce additional penalties and interest. You should always pay as much as possible by April 15 to minimize additional costs, even if you can not pay the amount in full.
- Do we still need to make Quarterly estimated tax payments on our K1 profits?
This is a bit more complex to answer than in one question. With proper tax planning, you can have enough tax withheld from your paycheck to cover both your profits and salary. You should revisit your profits on a quarterly basis to make sure we are catching up on your payroll for you. Projections are not a perfect science, but we can get you within range to ensure you are not penalized for under-withholding. You can also elect to make quarterly instead of withholding through payroll if you would like.
1099
- Do you need to issue 1099 for rent? Dues to organizations?
1099s are required if you receive payments for rent facilitated through another vendor but are income to you (e.g. subleasing through an agency or your business is a property manager). This is very uncommon for Formations customers. There are occasions if you have a rental property that 1099 may be required, but that is a conversation with your personal tax preparer to determine if it is required. Dues to organizations do not need 1099s because it is not for a service, instead, it is for a good, product, or membership.
- Does S-Corp need to file 1099 for international vendors?
International vendors are very specific. They do not need a 1099 but instead may require a 1042-S instead. This is dependent on international tax treaties and taxation laws. If you have this situation, please reach out to us to help you understand your obligations as they vary wildly.
- Does the customer’s payment to Formations count for 1099?
They do count as 1099s because we are not a C-Corp or S-Corp. We handle all our 1099s for Formations payments as we have all the info needed to process in our system. No action is required on this part.
- For the home office, do we still need to process 1099s for portions of the house rent?
You do not need to file 1099s for business use of home. This is a business accountable plan item that is reimbursed through your business and distributions to you.
- Is an S-Corp required to provide a 1099 to advertising service providers?
It would depend on how the payments were made and to what type of organization. In general, it is not for services rendered, so it would not apply. There may be times when you engage with someone to manage all things related to your advertising and pay them a fee. If this is the case, you would need to give them a 1099. But generally, this is a product you are purchasing so it is not required.
- Do we need to issue 1099 to vendors we paid through PayPal?
PayPal is a special exception. PayPal has special requirements from the IRS that they must report transactions, so there is no 1099 requirement for payments made this way. However, other cash transaction applications (CashApp, Venmo, FaceBook Money, Bitcoin) do not have this requirement and you are still required to file 1099s if you paid for service of over $600 in a calendar year.
W2
- Will Formations send us a W-2 on behalf of our business?
You are able to access your own w-2 online at gusto.com You can also request a copy from your CSM. As an added benefit, you can access your paystubs from Gusto as well.
- Does the reduction in the amount of taxes paid for social security and
does Medicare affect the amount received for social security benefits in retirement?
Balancing SS and tax savings can be a bit complex. Yes, SS is based on your maximum of 35 years of paying into the program. However, we see most customers use their tax savings on SS and MC to add to their easily convertible retirement programs (IRAs, 401(k)s, ROTH, etc). In these programs, you have more flexibility and investment options. It is recommended you speak with your financial advisor to ensure the right blend of trade-offs for your personal lifestyle and retirement goals.
General:
- Out of the W2, 1120s, K1, 1099 forms- which ones Formations submits on behalf of their customers?
All of them! You have access to your w-2 in gusto, 1099s are filed directly with the vendors but we can get copied for you, the 1120S and K-1s are in the business tax return we are preparing for you and you will receive them digitally to review and sign.
- As a Formations customer, can we still use Turbo Tax for our personal return?
Yes, you can. Although it can be a bit more challenging now that you have K-1s and business income – you can still work through the questions and get an accurate tax return with your W-2 and K-1
- For tax purposes, what do I need to know about trading cryptocurrency?
#1, do not buy/sell/trade crypto through your business as it is a separate activity.
#2 Crypto is a complex tax topic that you should fully understand before engaging in the activity. Reporting requirements are very specific.
With so many details to take into consideration, we understand this may be overwhelming. If you’re a Formations customer and have more questions, reach out to your customer success team.
Not a Formations customer yet?
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!