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EMC519
Level 1

I need help with S Corp Income Tax payment and recording

I started my LLC, elected as a s corp, May 2019. I thought the business pay taxes on the income the business brings in, but now that I am reading more into it... I'm understanding that I only pay taxes on the income I receive as a shareholder. Right?

 

What do I do with the estimated IRS Payments my business has sent in and how do I record it on Quickbooks?

 

TIA!

Solved
Best answer January 11, 2020

Best Answers
Teri
Level 9

I need help with S Corp Income Tax payment and recording

S-Corp does not pay Federal Income Taxes but they DO pay State Franchise Taxes in most states. 

S-Corp Owners pay the Federal Income Taxes AND State Income Taxes from their personal funds.

 

Business income taxes must be paid using FEIN (Tax ID), personal taxes are paid using your SSN.  If you paid in amounts with the biz tax ID you will need to get that money back to pay using SSN.

 

You owe taxes on the business profits in the year they are earned even if you leave the money in your business bank account (Debit balance) where the corresponding (Credit) balance is Equity.  

 

If you decide to take that money (profit earned by biz = net income on bottom of income stmt), out of the business bank account for personal use, that is called a Distribution (of profit) on K-1.

 

No tax is paid on that Distribution when you pay it to yourself since you already paid tax on it in  the year it was earned.  I am S-Corp Owner (Accountant - 30 years) but not CPA and hate taxes. 

 

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2 Comments 2
Teri
Level 9

I need help with S Corp Income Tax payment and recording

S-Corp does not pay Federal Income Taxes but they DO pay State Franchise Taxes in most states. 

S-Corp Owners pay the Federal Income Taxes AND State Income Taxes from their personal funds.

 

Business income taxes must be paid using FEIN (Tax ID), personal taxes are paid using your SSN.  If you paid in amounts with the biz tax ID you will need to get that money back to pay using SSN.

 

You owe taxes on the business profits in the year they are earned even if you leave the money in your business bank account (Debit balance) where the corresponding (Credit) balance is Equity.  

 

If you decide to take that money (profit earned by biz = net income on bottom of income stmt), out of the business bank account for personal use, that is called a Distribution (of profit) on K-1.

 

No tax is paid on that Distribution when you pay it to yourself since you already paid tax on it in  the year it was earned.  I am S-Corp Owner (Accountant - 30 years) but not CPA and hate taxes. 

 

View solution in original post

Rustler
Level 15

I need help with S Corp Income Tax payment and recording

Almost a year ago you started an s-corp and do not understand how it works?? Surely that is a misprint.

 

An s-corp is a pass through entity, it does NOT pay any income tax. You fill out the IRS form 1120S which creates a form K-1. The K-1 is shareholder income and expense and the net is fully taxable on your personal 1040

 

estimated tax is paid by you, not the company, estimated tax is a personal event

 

 You are required to be on payroll as a working shareholder - are you? You pay taxes out of payroll, payroll is an expense which lowers net income. That net income is fully taxable to you as the shareholder (your share of net income if there is more than one shareholder).

 

You do not just take money out of an s-corp, there are rules covering how that is done, state and federal rules which cover s-corp distributions.  That distribution is usually not taxable, but in some situations it can be taxed as income.

 

And none of the above always applies to the state income tax system.  Some states do tax the s-corp income, then tax you for the pass through amount.

 

You need an accountant, a tax accountant who knows your state requirements as well as the IRS requirements

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