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Tax Issues. If your company is a subchapter S corporation, an election must be filed with the IRS by the fifteenth day of the third month after the beginning of the corporation’s tax year. For a new company the regulations say that the tax year begins when the company first has shareholders, acquires assets, or begins doing business, whichever first occurs. The form must be mailed to the IRS at the service center where your company will file its returns. It should be mailed certified or registered mail, return recent requested. The burden is on you to prove that you filed the election. You should make a note to check after 15 days to make sure that you received back the green return recent card and after 45 days that you receive an acknowledgment of filing from the IRS.
A C corporation (general corporation) must pay FICA tax on all salaries or other compensation, including any bonus paid to a shareholder. An S corporation likewise must pay FICA on salary paid to shareholders, but does not have to pay FICA on distributions of earnings and profits. Be careful if you do not pay any salary but only distribute earnings and profits as IRS may re-characterize the payments. The S shareholder does not have to pay self-employment tax on the earnings an profits. Members of a LLC must pay self-employment tax if under the regulations they participate sufficiently in the operations of the company or have that authority. The company does not have to pay FICA on distributions to the members.
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Return to all incorporate, llc facts
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