How to Understand the Corporation Tax Return: Preparing and Filling. If you run a corporation or business, you have a specific obligation regarding taxation. It is none other than filing a corporation tax return each year, regardless of whether your company was profitable or not during the tax year. The procedure is simple because you only need to file form number 1120 to the IRS. This becomes compulsory for any businesses that belong to either C- or S-corporations category. If you run a C-corporation, your company needs to pay tax on all net income subtracted by available deductions. If you run an S-corporation, you (the owner) can choose either to pay tax as a corporation or to pay along with your personal tax return.
Corporation Tax Return – the Basics
The submission date is March 15th each year. The good news is that your company is allowed to request an extension, which is around 6 months. If your corporation’s assets exceed $10 million, you should file a tax return via the internet. Even though you can delegate this task to your trusted accountant, all the paperwork should be filed online. As for the installment payments, your company should pay them in April, June, September, and December. So, what should you include in your corporate tax return? The most information to be included in it would be your company’s financial status within the current year including profits and expenses. Using this detail, the government can determine the amount of tax your company owes to them. Other details are deductions, dividends, goods sold, compensation, business type, accounting method used by your corporation, balance sheets, and more.
Required Documents and Information for Filing Corporate Tax Returns
When it comes to filing a corporate tax return, you should prepare the required documents and information. These include the name, incorporation date, employer ID number, address, total assets, and employer ID number. You also need to submit details about your company income like:
- Goods sold cost
- Gross receipts
- Capital gains
Taking Advantage of Deductions
Like any other taxpayers, you are allowed to claim deductions as long as you are eligible. Your company should be eligible for one or more tax-deductible expenses against income. You also need to track details throughout the year and must submit honest documentation. As for the deductible expenses that you can claim, these include:
- Maintenance and repairs
- Other salaries
- Interest expenses
- Taxes and licenses
- Domestic production activities
- Employee benefit programs
What about Foreign Owners or Investors?
It would be simple if you (as the owner of the company) are a resident of the United States when it comes to filing a corporate tax return. What about foreigners? Well, special rules apply to them. Any non-US residents who run a business in this country must seek help from a tax expert. This type of businessman indeed owns shares in a C-corporation. That means they should pay tax separately between their corporation profits and personal profits (dividends). As an alternative, LLC companies can pass all the profits to the owner. Later, this person must file personal tax returns along with his business net income.
Filing Corporate Tax Return
As a business or company owner, you might notice how complicated corporate tax return filing is. Many requirements are included and different factors should be considered. It depends on how big your company is, how wide your business scope is, and how many subsidiaries that your corporation has. Not to mention there are many changes in tax laws, making filing more complicated and time-consuming. Despite this fact, you can still file it accordingly. Follow this guide to easily file your company tax return:
1. Determine your corporation
As mentioned earlier, each type of company has a distinct method of filing a corporate tax return to the IRS. In the United States, any corporation that doesn’t belong to the LLC category is called a C-corporation. In this category, you can opt for passing company profits to the owner who will then file it along with his tax return. If you have a problem determining the type of your company, you can call the IRS. They will later guide you on whether you need to file taxes as a C- or S-corporation.
2. Scanning for tax deductions
The next step is to determine tax deductions that your company is eligible for. The IRS allows corporations to deduct expenses needed for their business operation. The deductions also include some real estate purchases and investments, insurance payments, benefits, salaries, and some other taxes. To find out details about these deductions, you can read section 162 of the Internal Revenue Code.
3. Estimated taxes payment
The next thing to do is to pay your estimated taxes to the IRS. You should estimate how much tax your company needs to pay first. If your run a C-corporation, you can submit the corporate tax return quarterly a year to state and federal government. As for the S-corporation, you don’t need to pay estimated taxes because shareholders are passed with tax obligations by the company. There is an exception, though. Any S-corporations need to pay estimated tax when their investment credit recapture tax, the excess net passive income tax, and built-in gains tax reach $500 or more.
4. Federal tax return filing
If you run a C-corporation, you can use Form 1120 to file a federal tax return. As for the S-corporation, it will be Form 1120-S. One thing, you must submit it by its due date, which is on the 15th of April (for C-corporation) and the 15th of March (for S-corporation).
5. State and local tax return filing
Your company also needs to file a return for any state or local in which you run the business. If you run a company that works globally, you need to file international taxes for it in other countries either.
At this point, you have learned the importance of a corporate tax return and how to file it accordingly to the IRS based on the type of business that you are running. In some cases, you can do all the preparation and filing by yourself. However, it is simpler when you decide to hire a professional tax expert. This person will do anything on the behalf of your company regarding tax returns.