Corporate Tax Preparation for the Rest of Us
If you are considering a corporate entity selection for your business or already have one started, taxes are complex and a hassle to pull together and file. If the taxes are so complicated, why bother with electing corporate status? One reason for the complexity of the tax records and filings is that there are some great tax advantages for corporations as well.
Corporate Tax Preparation – Complex but with These Advantages
- Liability protection – Once properly formed, the corporate entity structure protects the shareholder owners from liability for corporate actions and financial obligations.
- Tax advantages – Consult a CPA for all the tax advantages available to a corporation. Some of them include deductibility of owner and employee insurance, retirement plans, and other benefits.
- The Corporation lives forever – While stockholders, employees, and owners pass away, the corporate entity lives on until officially dissolved. When shareholders die, their share of ownership is passed to heirs through wills and probate, but the corporation lives on.
- Raising capital – A corporation has an easier time in attracting investment and borrowing capital for growth.
For these and other reasons, corporations are formed, and they can prosper, growing to immense size in many cases.
Corporate Tax Preparation – Rules, Regulations, and Forms
With the benefits of a corporate entity comes a lot of complexity in the form or IRS rules, regulations, and reporting. The IRS Form 1120 is the corporate tax return form. This form is only 6 pages, but the instructions contain 20 pages. The basics before the line-by-line include:
- Who must file – Section 501 corporations can be exempt from filing, but all other corporations, even those in bankruptcy, must file the Form 1120 U.S. Corporation Income Tax. This is true even if there is no taxable income in the tax year.
- When and where to file – The 15th day of the 4th month after the end of the tax year is when most corporations must file their returns. New corporations with a shortened first year tax period must still file by the 15th of the 4th month after the shortened period ends. Corporations that have dissolved have the same 15th day/4th month requirement after dissolution.
- Accounting methods – When calculating taxes due on income, the corporation must calculate using the methods of accounting regularly used by the corporation in keeping its books and records. The methods used for income and expenses must be as recorded in corporate records and follow detailed instructions.
- Other forms required – There is a long list of other forms and statements that may be required based on the type of business. Most of these forms validate specific income and expense items in the return.
- Instructions, line-by-line – The instructions for every line of the form 1120 are detailed, and they pertain to the Form 1120 as well as Schedules C, J, K, L, and M.
Corporate tax preparation is complicated and, depending upon the size of the corporation, often requires a staff. A CPA is almost always advisable, as there are requirements and decisions that benefit from their advice.