19:17:12 2024-03-31

Tax filing for S Corporation and its shareholders, and its health care

S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. It is supposed to make tax filing easier. It does indeed. One should bear in mind the biggest catch of S-Corp - paying tax for retained earnings. In other words, even the money earned by S-Corp does not leave its business bank account (i.e. not used for salary or profit distribution), it is still taxed if it is profit.

If TurboTax is used for filing tax, the steps are:

Use TurboTax Business to file the 1120S and generate Schedule K for each shareholder. If the corporation uses QuickBooks to manage its finance, the filing can sail through within 2 hours(about 1 hour normally). Follow this guide to fill "Other deductions" with the health insurance premiums. Unfortunately, the import function of TurboTax Business is flawed. Both the imported income and expenses can be seriously wrong. One needs to check them carefully. Otherwise, the K-1 generated by TurboTax Business can be wrong and lead to overpaying tax. If it is filed electronically, it can be accepted by the IRS within an hour normally though TurboTax says it may take 2 - 3 days. For example, the 1120S was filed electronically at 13:53, 2018-03-15, and it was accepted by the IRS at 14:10. Some states require S Corporation to file state income tax, but some states such as Delaware do not. This is another advantage of incorporation in Delaware.
Federal tax does not require a balance sheet. Generating a balance sheet can be tricky sometimes. One usually can adjust the additional paid-in capital to achieve the final balance.
Each shareholder uses TurboTax Premier (no need for the Home & Business edition which is primarily for the self-employed) to file his 1040 using schedule-K, and the state tax. One can import many forms (e.g. 1099-INT) from banks within TurboTax saving a lot of time. Follow this guide to fill "Self-employed health insurance deduction" with the health insurance premiums. The whole process should take less than 2 hours. If a shareholder does not have any salary, he does not need to have a W-2, so the W-2 step can be skipped. He needs to enter Schedule K-1 for the Business Items in TurboTax. E-filing can be accepted by the IRS within 30 minutes (e.g. 20 minutes for the 2011 tax year filed in June, 25 minutes in July 2020), and a few hours by a state (e.g. 2 hours by MA DOR filed in June).

If H&R Block Premium and Business Tax Software is used for filing tax, the steps are:

Use H&R Block Premium and Business to file the 1120S and generate Schedule K-1 for each shareholder. If the corporation uses QuickBooks to manage its finance, the filing can sail through within 2 hours(3-4 hours for the first time. Subsequent filing can import previous files). Follow this guide to fill "Other deductions" with the health insurance premiums. Please note payroll tax should not include withheld tax.
- 2022: acceptance time: 1 hour
Federal tax does not require a balance sheet. Generating a balance sheet can be tricky sometimes. One usually can adjust the additional paid-in capital to achieve the final balance.
Each shareholder uses TurboTax Premier (no need for the Home & Business edition which is primarily for the self-employed) to file his 1040 using schedule-K, and the state tax. One can import many forms (e.g. 1099-INT) from banks within TurboTax saving a lot of time. Follow this guide to fill "Self-employed health insurance deduction" with the health insurance premiums. The whole process should take less than 2 hours. If a shareholder does not have any salary, he does not need to have a W-2, so the W-2 step can be skipped. He needs to enter Schedule K-1 for the Business Items in TurboTax. E-filing can be accepted by the IRS within 30 minutes (e.g. 20 minutes for the 2011 tax year filed in June, 25 minutes in July 2020), and a few hours by a state (e.g. 2 hours by MA DOR filed in June).

Acceptance time examples:

2018. Filed on the afternoon of April 17, 2018 (deadline day)

Federal: 3 hours t(heir computer system was overwhelmed, and stopped accepting e-filing for a few hours in the morning

2020. Filed at 18:42, 2020-07-15(deadline day)

Federal: 0:25 (19:07)

State: 16:31 (11:13, 2020-07-16)

2021. Filed at 16:11, 2021-05-17 (deadline day)

Federal: 19 minutes (16:30), refund: 9 days (2021-05-26)

State: 27:28 (19:39 2021-05-18), withdrawal: 4 days (2021-05-20)

2022. Filed at 2022-04-14 13:52 (deadline: 2022-05-18)

Federal: 2 minutes (13:54), withdrawal: 1 day (2022-04-15)

State: 2 hours (16:00), withdrawal: 1 day (2022-04-15)

2023:

1020S at 12:11, 2023-04-18, accepted with a message in 10 minutes.

Individual taxes filed at 21:45, 2023-04-18 (deadline day)

Federal (1040): ): 0:15 (22:00) with a message

MA State: 21:17 (19:02, 2023-04-19)

2024:

3.5 hours for filling out forms, e-filed1020S at 18:15, 2024-04-17, accepted in 15 minutes.

2 hours for filling out forms for federal 1040, 15 minute for filling out state forms. e-filed both the federal and the state at 5:34 2024-04-20. The federal filing was accepted in 10 minutes.

If there are any issues with data imported from QuickBooks > Reports > Account & Taxes > Income Tax Detail to help clean the data. Usually, problems are due to miscategorization in QB. Payroll expense includes unemployment insurances, social security, medcare paid by the company, so no need to add them separately.

One difference between S-corp tax filing and individual tax filing is that the former incurs a penalty of $195/share holder/month if it is filed late. The later will not incur any penalty if the taxpayer does not owe any tax to the IRS.

The deadline for filing 1120S is usually March 15. One can file 7004 to get a 6-month extension automatically. This can be e-filed. Unfortunately, TurboTax Business cannot do it as of today (2014-03-15), but there are many online services such as EZExtension. It takes less than 10 minutes for the IRS to accept and filing barring any errors.

A corporation located in Massachusetts that is registered in another state needs to file an annual report.

A corporation registered in Delaware needs to file an annual report by March 1. The annual franchise fee is $175 and filing fee $50. It takes about 10 minutes.

Late tax filing issues. One should try his best to file taxes on time. Otherwise, it incurs a lot of extra time needed to deal with various issues.

Suppose one files his 2012 1040 in 2015 using TurboTax Premier 2012. TurboTax Premier cannot import data from Quicken 2015. The only way to deal with this is setting the computer time to 2013, then do the following in Quicken:

File > File Export > Export TurboTax Tax Schedule report

File > File Export > Export TurboTax Captal Gains Report

Important: Quicken can use any time format, but TurboTax importer seems to be able to handle only mm/dd/yyyy. It cannot handle time format: yyyy-mm-dd. To change the time format, one needs to close Quicken, and go to Region and language settings to change the date and time format.

Cases:

Filing 2015 1120S took about 1.5 hours. It took only about 20 minutes for the IRS to accept it. More than 30 minutes were spent on dealing with the balance sheet (though not required by 1120S) and Form 8453 for signature. Word opens the Form 8453 PDF file generated by TurboTax in an unusable format, printing the PDF file to OneNote does not work due to an error of OneNote. Eventually, the file was opened with Windows Store app Reader, a screenshot was taken to Snagit to have the signature added.

Filing 2020 1120S including a PPP loan item took 2:40:31. A lot of time was spent on organizing QuickBook items such as reconciling undeposited funds and downloaded bank deposit transactions.

Healthcare:

Massachusetts has Business Express to help small businesses.

If an S-Corp starts out with one owner-employee, it is not eligible for Business Express. However, there are many other ways to help reduce the tax burden in healthcare coverage.

How to treat healthcare insurance premium payment is a bit complex for small businesses. The following is a practical scenario for S-corp:

A more-than-2% shareholder/employee, partner, or member of a multi-member LLC obtains an accident and health insurance policy in his/her own name:

The business makes all the premium payments.

The business reports the amount of the premiums as:

Part of gross wages on Form W-2, in the case of a more-than-2% shareholder/employee of an S corporation.

Form W-2 – boxes 1 and 16, and also box 18 if you are otherwise reporting local wages

Form 941 – line 2 (wages, tips, and other compensation), NOT for social security or medicare wages.

Form 940 – line 3 (total payments to all employees) and line 4 (payments exempt from FUTA). Also, check box 4a.

Results of this Scenario:

In this scenario, the plan is established by the business even though the policy is not in the business's name.

The premiums paid by the business may be deducted on Form 1040, line 29.

Tax filing in MA includes:

Monthly:

MA wage withholding payment > Log in > Click account ID >Accounts tab on the bottom half of the page > Withhold Tax... This will guide you step by step till payment. 5 min
Electronic Federal Tax Payment System for paying SS, Medicare, and withholding> Make a payment > Select 941 > Federal Tax Deposit. Monthly deposits are required if quarterly deposits exceed $2,500. Otherwise, the deposit is needed only quarterly.

Quarterly:

MA unemployment insurance > Employer UI Online login > Employment and Wage Detail Reporting > Submit Employment and Wage Detail. Payment will be done at the end of filling out the form. Only the first $15,000 of wage is subject to unemployment insurance charge, but one has to report this every quarter, so there may be no charge in later quarters. New employers enjoy a low rate (about 2%) for 3 years, then use rates determined by multiple factors. An employer should receive a letter from DUA in December informing and explaining the new rate for the coming year. One can find this letter by searching correspondences on UI Online. The higher an employer account reserve percentage (the more money reserved for unemployment payment), the lower the rate. The same for the other factor -Unemployment Compensation Fund Reserve Percentage that is applied to all employers. It is 0.6 - 0.9% in 2019 which is surprisingly low considering the low unemployment rate in 2019. An employer with over 6 employees are subject to Employer Medical Assistance Contribution (EMAC) 10 min
Paid Family and Medical Leave > Log in > Click account ID >Accounts tab on the bottom half of the page > Paid Family and Medical Leave... This will guide you step by step till payment. 5 min
Form 941 needs to be mailed to the IRS. One can download, fill, and save it. he can use it for the next quarter by only changing a few numbers. Form 941 must be filed after all the deposits are made via EFTPS. One should fill out form 941 first.

Federal tax forms 940 and 941 need to be mailed in. They can be mailed in after making the payments. Penalties are usually determined by payment amounts and dates. Since the settlement date of EFTPS payment is the day after the payment, the payment should be made one day before the tax deadline date.

Annually:

An S-Corp must file W-2 forms by January 31 for the prior year. It is done online (Main Menu > Report Wages to Social Security > I Accept > Create/Resume Forms W-2/W-3 Online). TurboTax Quick Employer Forms allows free online filing. Follow this guide to include health insurance Box 1, not Box 3 or Box 5.
Electronic Federal Tax Payment System(EFTPS) for paying unemployment tax > Make a payment > Select 940 Employers Annual Unemployment Tax > Federal Tax Deposit. Form 940 is due January 31 the following calendar year. One needs to deposit the unemployment tax quarterly if the FUTA tax exceeds $500. If the FUTA tax is $500 or less in a quarter, carry it over to the next quarter. Since Massachusetts has its own unemployment tax, the FUTA is less than $100 for each employee.
A corporation located in Massachusetts that is registered in another state needs to file an annual report.
A corporation registered in Delaware needs to file an annual report by March 1. It should take no more than 10 minutes. Remember to save the report before payment because it is hard to retrieve it afterward.

ADP has excellent information about all sorts of tax rates for businesses, and a good calculator.

Different states treat S-Corp differently:

DE: recognizes S-Corp, no corporate tax. Individual income tax: 2.2% to 5.55% on income under $60,000. The maximum income tax rate is 6.60% on income of $60,000 or over. Favorable capital gain tax rates for gains lower than $40k.
MA: recognizes S-Corp, no tax. Annual report fee: $125. Individual income tax: 5.0% on earned and unearned income. Certain capital gains are taxed at 12%
NH: does not recognize S-corp. Business Profit Tax (BTP) rate: 7.5% for businesses with revenue greater than $92k. Business Enterprise Tax (BET) rate: 0.55% on the enterprise value tax base, which is the sum of all compensation paid or accrued, interest paid or accrued, and dividends paid by the business enterprise, after special adjustments and apportionment for enterprises with gross receipts greater than $250k. No individual income tax.
TN: does not recognize S-Corp. Excise tax (on business income) rate: 6.5%. Franchise tax rate:0.26% on the capital stock that includes the value of all the physical components a firm uses to generate its goods or services, minus the firm’s debt. Business tax rate: 0.3% on gross receipts.
TX: recognize S-Corp, no corporate tax, but has franchise tax with a rate of 0.75%. No individual income tax.

The case for living in TX:

Low and simple tax burden.
Pragmatic government with common sense.
Reasonable housing prices.
The electricity rate is half that of MA.
A large state with bountiful opportunities.
Great education.

Austin has beautiful, peaceful, and safe towns surrounding it. Wimberley, 60km from Austin, has a lot of choices. Taylor, also 60km from Austin, has many choices too.

Taylor should be among the top choices.

Areas With The Lowest Cost of Living in Austin – (List by Niche.com & prices by Livability.com)

Redwood, Texas – Located in Guadalupe County. The median income in Redwood, TX is $47,778 and the median home value is $54,700.
Lockhart, Texas – Located in Caldwell County. The median income in Lockhart, TX is $48,884 and the median home value is $115,400.
Martindale, Texas – Located in Caldwell County. The median income in Martindale, TX is $43,929 and the median home value is $151,200.
Uhland, Texas – Located in Hays County. The median income in Uhland, TX is $40,662 and the median home value is $78,100.
Taylor, Texas – Located in Williamson County. The median income in Taylor, TX is $42,793 and the median home value is $116,600.
Lago Vista, Texas – Located in Travis County. The median income in Lago Vista, TX is $75,126 and the median home value is $189,400.
Elgin, Texas – Located in Bastrop County. The median income in Elgin, TX is $50,369 and the median home value is $104,000.
Hornsby Bend, Texas – Located in Travis County. The median income in Hornsby Bend, TX is $49,077 and the median home value is $123,000.
Round Rock, Texas – Located in Williamson County. The median income in Round Rock, TX is $72,412 and the median home value is $179,900.
Wimberley, Texas – Located in Hays County. The median income in Wimberley, TX is $59,167 and the median home value is $214,600.