| CORPORATION
A few ground rules, briefly
summarized: "C-Corporations file Form 1120. S-Corporations file
Form 1120S. A corporation’s fiscal year may end on December 31st,
at the end of its ‘natural business year’, or on any other date
approved by the Internal Revenue Service.
"The C-Corporation pays its own
taxes. The S-Corporation assigns corporate profit (or loss) to its
owners on the basis of percentage ownership, somewhat similar to the
manner of a Partnership. In the C-Corporation, losses can be carried
back (or forward) to other years, thereby somewhat leveling the tax
burden over time. In the S-Corporation, income or losses are fully
assigned to shareholders who take them on their personal income tax
returns in that year and that year alone."
These statements are a
simplification—almost an oversimplification—of tax law, but in
our business we see so many instances where even the most elementary
characteristics of corporate tax law have been confused that it
seems better to begin with a possible oversimplification and build
from there.
Do you know what type of corporation
you have and why you have it? Is it producing the tax results that
it should? Is your tax year (your fiscal year) the best for you that
the I.R.S. will allow?
NATURAL BUSINESS YEAR A "natural
business year" ends at a time when your cycle of accounts
receivable, accounts payable, inventory, and/or cash reach similar
(or opposite) points. It’s important to know because there can be
advantages to having your fiscal year end at the end of your natural
business year.
C-CORPORATION Are you building your
business or are you taking out the profits? The answer to this
question and others about your specific situation tells whether a
C-Corporation is your best choice.
S-CORPORATION What percent of the wages
and profits of your business go to your employees? What percent are
yours? Is your annual business profit predictable or unpredictable?
How well can you project what’s ahead? Once revoked, you cannot
become an S-Corporation again for a long time, but if it’s the
wrong one, there’s no reason to keep it.
Contact Us Today for Tax, Accounting,
and Bookkeeping Services!
(281) 827-3663
Hours of Operation:
Monday–Friday, 8:00 a.m.–5:00 p.m.
Saturday, 9:00 a.m.–8:00 p.m.
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