A Simple Guide from Calvary Tax Service
Congratulations on becoming an S corporation owner. While an S corporation offers many tax advantages, it also comes with ongoing responsibilities. The good news is that you don't have to navigate them alone. Calvary is here to help you stay compliant, avoid unnecessary penalties, and make informed decisions throughout the year.
Before You Pay Anything
It's common to receive mail that looks like an official government notice requesting payment for items such as annual reports, Statements of Information, labor law posters, EIN registration, certificates, or other business filings.
In most cases, these are advertisements, not government bills. They are designed to look official and often charge significantly more than the actual filing fee.
Before sending payment or responding to one of these mailers, contact Calvary. We'll let you know whether it's legitimate, whether anything actually needs to be filed, and can often handle the filing for substantially less.
1. Keep Your Corporation in Good Standing
Your S corporation has filing requirements beyond the annual tax return. Depending on your state, this may include annual or biennial reports, franchise taxes, Statements of Information, and other required filings.
If you're unsure whether something needs to be filed, just ask. We're happy to help determine what's required and can handle many of these filings for you.
2. Keep Business and Personal Finances Separate
Use your business bank account for business income and business expenses whenever possible. Keeping business and personal finances separate makes bookkeeping easier, helps maintain accurate financial records, and supports the legal protections of your corporation.
If you maintain your own bookkeeping, be sure business and personal transactions are recorded correctly and do not mix personal expenses with business expenses. If Calvary provides your bookkeeping services, we'll help ensure everything is recorded properly.
3. Keep Good Records
Save important financial records throughout the year, including bank statements, credit card statements, loan documents, payroll records, receipts for purchases, and any notices you receive from tax agencies.
Good records make tax preparation easier and help support your deductions if questions ever arise.
4. Pay Yourself Properly
If you actively work in your S corporation, you will generally need to receive reasonable compensation through payroll before taking shareholder distributions.
Determining the proper salary is one of the most important compliance requirements for an S corporation. Paying yourself too little can create IRS issues, while paying yourself more than necessary may result in paying more payroll tax than required.
There is a great deal of nuance involved, and every business is different. Calvary has extensive experience helping S corporation owners determine an appropriate salary and structure payroll in a way that helps keep you compliant while avoiding unnecessary payroll taxes.
5. Contact Us Before Major Business Decisions
Many business decisions have tax consequences. Before making major changes, contact us first.
Examples include:
- Purchasing or selling a vehicle
- Buying equipment
- Hiring employees
- Adding or removing an owner
- Taking large shareholder distributions
- Selling or closing your business
A quick conversation beforehand can often save money and prevent costly surprises later.
6. Don't Ignore Tax Notices
If you receive a notice from the IRS, Franchise Tax Board, EDD, CDTFA, Secretary of State, or another government agency, don't ignore it.
Forward us a copy as soon as reasonably possible so we can review it and let you know whether any action is needed and how we can assist. Many notices are routine, while others require a timely response. Reviewing the notice early often provides more options for resolving the issue.
7. We're Here to Help
One of the biggest benefits of working with Calvary is having someone to call before a small question becomes a big problem.
If you're unsure about a tax issue, a business decision, or whether something should be handled a certain way, contact us. We'd much rather help you plan ahead than try to fix an avoidable problem later.
Common Mistakes S Corporation Owners Make
Mixing Business and Personal Finances
Using the same account for both business and personal expenses creates bookkeeping headaches, makes tax preparation more difficult, and can weaken the legal separation between you and your corporation.
Not Running Payroll
Many S corporation owners believe they can simply take money from the business whenever they need it. In most cases, owners who actively work in the business are required to receive reasonable compensation through payroll before taking shareholder distributions.
Waiting Until After a Major Purchase
Large purchases such as vehicles, equipment, or other assets often have multiple tax treatment options. Contacting us before you buy allows us to help structure the purchase in the most tax efficient manner.
Ignoring Government Notices
Many tax notices have response deadlines. Even if a notice turns out to be routine, delaying your response can limit the available options and may result in unnecessary penalties.
Waiting Until Tax Season to Mention Important Changes
Changes in ownership, new loans, major purchases, retirement plan contributions, or selling business assets can all affect your taxes. Letting us know throughout the year gives us more opportunities to help minimize your tax liability.
Assuming Every Business Expense Is Deductible
Tax laws contain many exceptions and limitations. If you're unsure whether an expense qualifies as a business deduction, ask before making assumptions. A quick conversation can often prevent costly mistakes.
Trying to Figure Everything Out Yourself
Every business is different, and tax laws change regularly. When in doubt, contact Calvary. We work with S corporations every day and are here to help you make informed decisions before problems arise.
Final Thoughts
Congratulations again on becoming an S corporation owner. While there are additional responsibilities that come with an S corporation, there are also valuable tax benefits when it's maintained properly.
Our goal is to help you stay compliant, minimize taxes, and make informed decisions throughout the year. If you ever have a question or are unsure about something, don't hesitate to reach out. We're always happy to help.
