Hello, my name is Wayne Lippmann. I'm a CPA in Northern California. I've been practicing individual tax planning and corporate and business tax planning for the last 35 years. I was formerly a partner at the firm of Price Waterhouse in San Francisco. I currently have a smaller firm in Walnut Creek, California. Today's discussion will be about taking money out of an S corporation. There are three ways to do so: through wages or bonuses, through distributions, or via loans. The first way to take money from an S corporation is through wages or bonuses. When paying wages, both the S Corp and the employee share of Social Security tax must be paid. It is important that the wages are reasonable, as the IRS typically deems it unreasonable for S corporations to pay very little or no wages. In such cases, part of the corporation's profits will be allocated as wages. Therefore, it is highly recommended that S corporations pay reasonable wages. The second method is making distributions from the S corporation. Typically, these distributions are tax-free as long as they do not exceed the individual shareholder's basis in the S corporation. If the distribution exceeds the basis, it will be taxed to the individual as long-term capital gain. However, if the distribution does not exceed the basis, it is considered a tax-free distribution. This is because the profits of the S Corp have already been taxed to the individual. Therefore, the distribution is merely a distribution of the already-taxed income. The third way to distribute money from an S corporation is through a loan. It is advisable to complete a promissory note when making a loan from the S corporation to the shareholder. The interest rate should be based on the Applicable Federal Rate (AFR) or the minimum interest rate established by...
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S corporation taxes Form: What You Should Know
Form 1099-L — Business Income Tax Return from a Small Business (Non-Profits, Business Income) Do NOT send your business' 1099-L to your corporate income tax return, it will not be accepted. Send S corporation 1099 to IRS, not to the corporate income tax return. S corporation 1099-L Business Income Tax Return (Form 1120-S/ 1099-MISC) To obtain Form 1099-MISC for your S corporation, send to the California Franchise Tax Board: 1099-MISC: Tax Return of a Small Business or Business Entity S corporation 1099-MISC Business Income Tax Return (Form 1120-S/ 1099-MISC) Send Form 1099-MISC to the IRS. DO NOT send to your Corporate Income Tax Return. The Form 1099-MISC is for the tax year that a corporation is formed in this state. The Form 1099-MISC will determine the amount due on an individual's return. Tax Return — IRS Form 50-MISC — License and Franchise Tax Certificate If you have no S corporation, but still have a lease agreement for a property, you will need to file a Form 50-MISC. You can obtain a Form 50-MISC from the California Department of Industrial Relations. You can also obtain Form 50-MISC from the tax department if there is an S Corporation. The Form 50-MISC gives the location and name of the S corporation. If you have only one business with one entity, you can obtain a document titled, “Application for the License and Permit,” from your Department of Industrial Relations or you can obtain a Form 50-MISC from the California Department of Industrial Relations. Tax Return — DMV S corporation Business Franchise Tax Statement S corporation Franchise Tax Statement (Form 50-MISC) If an S corporation has a business income, then a Franchise Tax Statement must be filed. An S corporation Franchise Tax Statement is a summary form of the Franchise Tax. The Form 50-MISC is the actual Franchise Tax. The Franchise Tax Statement is a summary. The business Franchise Tax Statement details the business. The purpose for S corporation tax payments is to allow the Franchise Tax Director to get an accurate picture of a business in the state of California.
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