Gwinnett CPA on Tips to Remember When Completing an S Corporation Return

Gwinnett CPA on Tips to Remember When Completing an S Corporation Return

Form 1120S: A Beginner's How to Guide

Lifting the veil behind the confusion of tax returns is an important part of the relationship with your CPA. The more a business owner knows about preparing corporate income taxes the better suited they will be in providing what will be needed. The initial step, in any well-thought out preparation process is to first obtain all of the information that will be required to complete the returns. For example on our web site www.hiscpa.com/newclient.html you will find a listing of all of the information that will be required to prepare the year-end corporate income taxes. The most critical part of this process is to obtain a Balance Sheet and Profit & Loss for the year being sure to include an adequate chart of accounts to properly reflect items on the tax return as well as to manage the financial decisions of the business.

Keep these basis tenants in mind when preparing your corporate income taxes

Filing Date. The tax form to be filed for an S Corporation is Form 1120S and the corresponding form to the state of Georgia is Form 600S. Corporate income tax returns are due March 15th of each year or seventy-five days after the end of the company's tax year. This due date would relate to LLC's who have filed a tax election to be taxed as an S Corporation as well.

Tax Provision. No provision for income taxes are to be recorded on an S Corporation Internal books as an S Corporation does not pay income taxes. Instead those earnings flow down to the owners of the company who pay taxes on accordingly on their respective Form 1040/their personal return.

Reporting of Income. Gross Receipts of the business are listed on page one of the return with any corresponding reduction reflected for any returns and allowances. If your corporation is located solely within one state, doing business in several states or worldwide all of the corporate income are first listed the return.

Cost of Goods Sold. Cost of Goods Sold are detailed on Schedule A of Form 1120S detailing the opening and ending inventory for the year, purchases, cost of labor, other direct costs, and Section 263A (which is an allocation, if required, of any applicable overhead costs).

Gross Profit. Perhaps the most significant indicator of the likelihood of corporate profits is the amount of gross profit or margin that a company reflects for the year. Care should be taken at all levels of management and personnel alike to ensure that an adequate gross profit in terms of both dollars and percent is achieved on each and every single billing done during the year. Managing this percentage is critical to influencing what the final profit for the year will be.

Salaries. Salaries are broken down between on the return between Officers, Other salaried personnel, and payroll taxes thereon. Usually apart from Cost of Goods Sold these are the second largest dollars listed on the return. Care should be exercised to ensure that these accounts are similarly reflected on a company's internal profit and loss as well.

Other Deductions. As an attachment to the return, Other Deductions are listed detailing other substantive expense items such as Office Supplies, Insurance, Travel, Telephone & Utilities and Legal & Professional Fees.

Ordinary Income (Loss). This is ultimately the number which will show up on the K-1 of the return, which is how an S Corporation tells its owners their pro rata portion of Corporate Tax Items.

Income Taxes. As an S Corporation is a "flow through entity" all of the earnings from the corporation flow down to the returns of the shareholders who own the company stock. It is there on the personal returns that the S Corporation shareholders reflect the operating results and pay the income taxes that are owed on S Corporation earnings. As these monies flow down to the individual owners/taxpayers return (Form 1040), there are no income taxes due to the IRS on the filing of the Form 1120S/the corporate income tax return for S Corporations. When the GA S Corporation return (Form 600S) is filed there are no income taxes due GA, as well, as the earnings are reported on the GA owners return (regardless of whether you are a resident of GA or a non-resident). However there is a modest net worth tax due the State of GA, which is based upon a company's net worth (per the Balance Sheet) at the end of the year.

John Dillard CPA of His CPA PC (a Christian CPA firm) is an author and Certified Public Accountant (All Rights Reserved). 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 visit http://www.john-dillard.com/

We advise clients on: IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate and Personal Income Tax Returns, Part-time CFO, Virtual Controller, Business Planning, Payroll Administration and Bookkeeping