An S corporation is a small, closely held corporation that essentially operates as a pass-through system in which any income and losses pass through the business owner’s personal tax returns. One of the biggest benefits — and often reason why small business owners set up their business as an S corporation — is that S corporations do not pay any income or payroll taxes, including social security and Medicare taxes. Recently, however, the Internal Revenue Service (IRS) has begun scrutinizing single member S corporation business owners who are making a profit but not taking a salary, nor are on payroll. Note that if there are losses on your business, the IRS will not expect a business owner to be on payroll, however, as you grow your business, it is important to seek professional guidance to follow the guidelines. The trusted experts at Orlando based CPA Accounting & Tax Services outlines 6 steps for setting up payroll to help remain in compliance for a single member S Corp:
1. Determine a reasonable salary that is in line with your business’ earnings.
2. Calculate payroll amounts and all relevant taxes (this varies by state).
3. A Federal quarterly payroll tax return should be prepared.
4. Record all payroll transactions into your accounting system.
5. Have your tax professional prepare the state payroll tax returns for your business.
6. Address any tax shortfalls.
We help small business owners determine the right corporate entity set up for them and help navigate through the complexities and tax laws associated with each. Contact the professionals at CPA Accounting & Tax Services to help guide you through tax season and beyond. We specialize in Business Accounting Services, Individual Tax Services, Tax Preparation, International Tax Services, Tax Planning and Tax Resolution Services. We have offices in Orlando, Florida and service clients worldwide. Find out how we can serve all of your accounting needs by contacting us today: www.cpaaccounting.biz