- August 1, 2022
- Posted by: Gunveen Bachher
- Category: U.S Taxes and Businesses
Here’s a list of things that you need to take care of in order to maintain the S-Corporation status.
1) Corporate Documentation:
Ensuring that all your Documents such as the Articles, Minutes, Bylaws, Corporate Seal etc. are all in one place. There are people who think their entity has an S-Corp status even though they have never filed Form 2553 to make that election. Forming an entity and maintaining it with proper documentation are two separate things.
2) Annual Meetings and Minutes:
Make sure you have your annual shareholder and director meetings & minutes in place and that everything is clean and clear on the system. Mostly, business owners are out of compliance when it comes to paperwork as a result of which they are not able to reap benefits of asset protection and S-Corp tax benefits.
3) Annual State Secretary of State Filings:
Each State has an annual filing fee that you need to pay in order to maintain your S-Corp status. In case, you do not pay this filing fee, your status will be involuntarily dissolved and you might move back to a simple LLC or a sole proprietorship. The IRS might end up having issues and might even disallow tax filings if it finds out that you are not in good standing with the State.
4) Always Use Your Entity Name:
Once formed, use your entity name everywhere you can- website, emails, business cards, online subscriptions, seminars etc. The # 1 rule of asset protection is to let your customers, vendors, contractors, know that your company is the one that is doing business and that you are simply an employee of that corporation.
5) Quarterly Payroll and Compliance:
Make sure your pay yourself every month in the form of wages, pay your FICA taxes and do the quarterly/annual reporting. Pay yourself a ‘reasonable’ salary as per IRS standards.
6) Federal and State Tax Filings:
Use Form 1120-S to file by March 15th of every year unless you decide to file an extension. With the extension, you will have until Sep 15 to file. Filing structure with each State is different and varies in term of cost too.
An S-Corp status is a powerful tax planning tool because it helps you save 15.3% on self employment taxes and also provides great asset protection too. Though maintaining its status comes with compliance headaches and added admin costs.