For the purposes of filing federal income taxes, a corporation is considered a separate taxpayer. Any profit made is taxed to the corporation when earned and then taxed to the shareholders upon distribution as dividends. Critically, corporations that generate net income during the tax year must prepare their taxes diligently and ensure compliance with the complex business taxation requirements. Depending on the circumstances surrounding your corporation, you might have tax filings in multiple states and jurisdictions — in addition to filing a corporate income tax return for the year with the Internal Revenue Service.
The following are the four primary steps that every corporation must consider when preparing its tax filings:
Close Out Your Books for the Year
When you reach the end of the tax year (which is December 31 for most corporations), you need to close out your books and prepare financial statements to file your annual income tax return. This process should be done with the help of a qualified accountant.
Closing out your books can be complex. The steps include posting entries to your general ledger accounts and totaling them, balancing your accounts, and adjusting entries to account for items that don’t get in the daily transactions. After you’ve identified and corrected any balance errors, you are ready to complete a balance sheet and income statement. Then, you will need to prepare closing entries in a general journal and prepare a post-closing trial balance.
Have Your Payroll Company Prepare W-2s and 1099s
If your corporation has employees or uses independent contractors, your payroll company will need to prepare the applicable wage and tax reports required by the IRS. The deadline to give W-2s to employees and 1099 forms to independent contractors — and file them — is January 31 of the year following the tax year. It’s crucial to understand the difference between an employee and an independent contractor to ensure you are correctly classifying workers and reporting taxes.
Speak with Your Accountant
The Internal Revenue Service’s rules and regulations are complex, and every corporation needs a good CPA who can help with navigating them. By working with an experienced accountant, you can ensure your tax return is correct — and you get every tax deduction and credit available. A CPA can also help you with avoiding an IRS tax audit, avoiding back taxes, and being charged delinquent fees. It’s best to work with an accountant throughout the year as they can help you to create a budget, steer clear of fraud, and advise on matters such as investments, restructuring, and sales or mergers.
File for an Extension if Necessary
Sometimes, a corporation might need to request an extension to file Form 1120S. By filing Form 7004: Application for Automatic Extension of Time to File by the original due date of the return, you may improve the accuracy of your tax filings and avoid penalties. But even though an extension can provide you with more time to file, it’s important to understand that it doesn’t give you extra time to pay — your company’s taxes will still be due by the original deadline. The date your taxes are due and the date by which you will need to file for an extension will depend upon the structure of your company.
Contact an Experienced New York Tax Attorney
If you’re a corporate owner, it’s critical to be aware of your federal and state tax obligations. Offering reliable representation and skillful counsel, the legal team at Brinen & Associates assists clients with a wide variety of tax matters at both the state and federal levels. Call (212) 330-8151 or send us a message to learn more about how we can help you and your business.