The floor of elaborateness in corporate tax render filing requirements, coupled with patronize changes in tax laws, makes the occupation of accurately filing corporate taxes time-consuming and complicated. Read on for a lead to prepare and filing corporate income tax returns .
Does every corporation file income tax returns?
Every ship’s company in the U.S. that generates net income during a tax year is required to file a corporate income tax return. Whether these companies must pay income tax or not is a unlike question. For exercise, unlike a pot, a limited liability company ( LLC ) is not a classify tax entity, so it does not pay federal income taxes ( although some states do require LLCs to pay taxes ) .
The two main types of corporations that must file federal tax returns are :
- C corporations: A legal structure for a corporation in which the owners or shareholders are taxed separately from the entity, a C corporation is the most prevalent type of corporation. These corporations are subject to federal corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, potentially creating a double taxation situation.
- S corporations: A type of corporation that may pass income (along with other credits, deductions, and losses) directly to shareholders, an S corporation does not pay federal corporate taxes. Usually associated with small businesses (100 or fewer shareholders), this designation offers the regular benefits of incorporation and the tax-exempt privileges of a partnership.
C corporations and S corporations both must file corporate tax returns to local, express, federal, and possibly international authorities once a tax year via corporate tax returns .
7 steps for preparing corporate tax returns and filings
1. Determine if your corporation is a C corporation or an S corporation
By default, a corporation early than an LLC in the U.S. is a carbon corporation. once you have established your company as a C pot, you can then file an choice to be taxed as an S corporation, which means that tax obligations pass through to the owners ’ personal tax report .
If you don ’ metric ton know what kind of corporation your business is, call the IRS Business Tax Line at 800-829-4933. The IRS can tell you whether you should file taxes as a C pot or an mho corporation .
2. Determine your tax deductions for write-offs
The adjacent step in preparing a bodied tax recurrence is determining the tax deductions you ’ ll be able to write off. For corporations, the IRS allows you to deduct all current expenses necessary for the operation of your business, a well as certain investment and very estate purchases, employee salaries and benefits, some taxes, indemnity payments, and more. part 162 of the Internal Revenue Code details the allowable commercial enterprise expenses.
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3. Pay your estimated taxes to the IRS
next, estimate how much tax you ’ ll need to pay on the net amount. then if your clientele is a C pot, resign estimated tax payments four times a year to state and federal authorities. S corporations typically don ’ thyroxine pay income taxes, since they pass tax obligations through to their shareholders, which means that they normally don ’ t pay estimated taxes. however, S corporations do need to pay estimated tax when their tax on built-in gains, the surfeit net passive-income tax, and the investment credit recapture tax total $ 500 or more. C corporations normally must besides pay estimated taxes to one or more states .
4. File your federal tax return by its due date
C corporations use kind 1120 to file their union income taxes, while S corporations use form 1120-S. An randomness pot ’ randomness shareholders must report their share of income from the pot on a Schedule K-1 attached to their personal tax returns .
- When are corporate tax returns due?
- C corporations must file on the 15th day of the fourth month after the fiscal year’s end. That means that for C corporations whose fiscal year ends on Dec. 31, tax returns are due by April 15. The only exception to this rule is for a corporation whose fiscal year ends on June 30, which must file a tax return by Sept. 15.
- S corporations must file on the 15th day of the third month, which usually means that these companies’ tax returns are due on March 15. Tax calendar software can help you keep track of these deadlines.
- How do you file an extension for your corporate tax return? The IRS provides Form 7004 for companies that want to request an automatic 6-month extension to file their income tax and other returns. As with tax extensions for individuals, filing the form does not extend the date on which any payment is due.
- What is the penalty for filling corporate tax returns late? Missed-deadline penalties for C corporations and S corporations (if you owe the IRS) are 5% of the outstanding tax for up to five months, shifting to a different percentage thereafter, depending on the amount owed.
- Are you required to e-file your corporate federal return? Most corporations don’t need to e-file, but C corporations and S corporations must file their federal income tax returns through either approved software or a tax professional who is an authorized e-file provider. Tax professionals who want to e-file for their clients must be Authorized IRS E-file Providers or Electronic Return Originators.
5. File your state tax returns by their due dates
You besides need to file a tax return for any state in which you conduct business, if that state requires it .
- When are state corporate income taxes due? Although most states require a corporation to file its income tax return on the same day that it files its federal taxes, this is beginning to change. Several states now have due dates one month or later, to give taxpayers more time to complete their federal returns, on which the state returns are based.
- What are the state filing requirements for corporations? Not all states have the same tax filing requirements for corporations. While 44 states and the District of Columbia do have corporate income taxes, some states (namely Ohio, Nevada, Texas, and Washington) tax corporate gross receipts instead. Two states — South Dakota and Wyoming — currently have no corporate income tax or gross receipts tax.
- How are state taxes calculated? States use various formulas to determine how much of a company’s income from sales should be taxed in that state — a process called. It’s important to keep abreast of the apportionment details for each state in which you do business, as well as other state-specific details like corporate tax rates, deduction rules, and due dates for estimated tax payments and annual returns.
6. File local tax returns by their due dates
Corporations may besides be liable for taxes to city, county, or regional jurisdictions. local burdensome authorities are less probably to require estimate tax payments, but it ’ sulfur important to check the local rules that apply to your business. Most local tax returns are due on the lapp schedule as state taxes, but that is besides a detail to check before filing.
7. File international taxes for any business in other countries
U.S.-based organizations that do international business will besides need to consider the specialize rules and guidance for paying and filing corporate taxes globally. Companies should keep in mind that the IRS allows companies to file for a extraneous tax credit to defray U.S. tax obligations to account for taxes paid to early countries on income derived from occupation there .
Common challenges and pain points for corporations
Tax teams face many challenges in organize and filing tax returns accurately. It ’ mho necessity to keep up with changes in tax rules and regulations, which happen frequently at all levels. This can be particularly challenging if your company has nexus in multiple states and you ’ re required to file taxes in multiple jurisdictions. A dependable tax and account research tool can be invaluable in these cases .
Tax engineering can help your team file your company ’ randomness corporate tax returns faster, more efficiently, and more accurately. Thomson Reuters ONESOURCE Income Tax streamlines tax management, freeing up your tax and accounting staff for more strategic work. Learn more about handling business tax income requirements on the “ Tips and Tricks for a successful filing season. ”