There are two distinct sub-topics under the main headline here.
The first is for those who are not yet an S Corporation, but are thinking long and hard about becoming one.
Let’s make something perfectly clear here: by electing to become an S Corporation, you are NOT magically changing your entity structure.
You will need to be either a C Corporation or a Limited Liability Company, that’s a given.
Then, you ELECT to be taxed by Uncle Sugar as an S Corporation at the federal level.
Most states recognize this distinction and allow for it with their own state filings, but to be clear if you’re in New York State you must elect at the state level as well.
A few other states have an irritating paperwork requirement. It’s worth it to know which ones, but hey, I digress…
At the state level you’re still an LLC or a C Corporation, whatever your articles of formation say you are.
Get it? That’s why I find myself doing a slow burn every time I see another YouTube video with LLC vs. S Corp somewhere in its title.
For the love of a gracious God, anyway.
So, your buddy told you during happy hour that he’s saving beaucoup bucks by enjoying S Corp status, and you should really think hard about doing it.
What they may not be telling you is that the reason it saves people money is because of the absence of the self-employment tax.
This lovely gift in the Internal Revenue Code allows the previously-mentioned Uncle of ours to tax your net business income twice.
Two times.
Once for income tax (of course).
Then again, to fund FICA, the Federal Insurance Compensation Act.
In other words, Social Security and Medicare.
If you file a Schedule C Business Income form because you got a 1099-NEC from somebody, presto-chango, you’re an entrepreneur, and you just got taxed twice!
Once your net income is high enough (say, around $60,000 a year after all expenses) that you’re aghast at how much you actually have to cough up every year, it starts becoming worth it to make that move.
Even at that level I can put over $4,200 back into your business with that one simple trick.
Obviously, if your business is growing, and with it your net income, the savings grow right along with it.
If you have been an LLC or a C Corporation since the beginning of this year, and this is the year you know you’re ready to start saving thousands on unnecessary excess taxes, you can file for S Corporation status without any long explanations by March 15th, 2023.
You can even do it yourself with the help of a course that will teach you step-by-step how to not only do the election, but hit all the bases going around the horn every single year.
That gives you a little over two weeks to think it over.
Oh, and by the way? That course will even teach you how to fax the paperwork, and get same-day confirmation.
The Second Deadline
This is for those of you, like me, that are already S Corp status.
You do have a separate necessary tax return to do, and guess when it’s due?
If you said March 15th, then winner winner chicken dinner!
Both S Corp and Partnership returns, aka Forms 1120S and 1065, are due a month prior to the Form 1040 and corporate deadline in mid-April.
The reason is pretty simple: these two returns both provide a Schedule K-1 that the taxpayer needs to file their 1040 with.
They are also both what are known as “informational returns,” meaning that (except in some cases where C Corps have elected S Corp) the business has a non-taxable event when filing them.
Word of warning: there are some states that have an annoying little franchise or corporate tax. New York is one, Kentucky is another. I’m sure there are others, though I don’t know all 51of them (you have to count D.C.).
So, your S Corp return may not be totally tax-free.
The S Corporation deadline, then, is March 15th for both electing to become a new S Corp as well as for the filing of your first tax return if you did your election last year or before.
And March 15th is just 17 short days away.
Have YOU started your S Corp paperwork yet?
Better get on it! You’ll thank me later, because last parting thought?
If you fail to file on time or file an extension there’s a monthly non-filing penalty.
Please don’t pay Uncle Sugar a penny more than you have to.
Okay?