This upcoming Monday isn't just St. Patrick's Day, it's also tax day for many small-business owners.
If you own a corporation that reports on a calendar year, March 17 is the tax-filing deadline for your corporation’s income-tax return for 2013. March 15, the normal filing deadline, is a Saturday this year.
While surely many of you have long ago prepared for this annual filing deadline, there are bound to be many who have let it slip. If you're one of them, you'll obviously be crammed for time. To cut through the morass, here's a brief outline of the new features and requirements that you should know before you file, as well as tips on how to file for an extension:
New 2013 Forms and Schedules
Regular, or C, corporations file Form 1120, while S corporations file Form 1120S. There are some changes related to Form 1120S to consider. S corporations may need to complete a new Schedule B accompanying their Form 1120S. This schedule is required if they have any shareholder who is a disregarded entity--that is, a limited-liability company with one owner, trust, or estate.
S corps also have to complete Form 1125-E to report compensation paid to owner-employees if the corporations’ gross receipts are $500,000 or more. This form wasn't mandatory for S corporations in the past.
A New Medicare Tax for Some Shareholders
S corporations generally don't pay taxes. Their owners pay taxes on their share of the corporations’ net income. To enable owners to figure their personal taxes, S corporations must issue these schedules to shareholders. Schedule K-1 tells shareholders their share of income, deductions, credits, and other items.
New on this year’s Schedule K-1 is code U of box 17 for reporting information related to the net investment income, or NII, tax. This is an additional Medicare tax of 3.8 percent on the lesser of net investment income or the shareholder’s modified adjusted gross income over his or her threshold amount that depends on tax-filing status. The former code U of box 17 of an S corporation’s Schedule K-1 has been redesignated as code V to report other information.
Note: A shareholder’s net income from an S corporation is treated as investment income unless the shareholder is active in the business. Participating in daily business activities and receiving a salary from the corporation indicate active participation. There’s guidance from the IRS on determining active participation and other rules for the NII tax. And salaries and other taxable compensation paid to owner-employees of C and S corporations is subject to the 0.9 percent additional Medicare tax if earned income exceeds a threshold amount that depends on tax-filing status.
Filing a Tax Extension
When in doubt, you can still file an extension. This will automatically give the business six more months--to September 15--to file the 2013 income-tax return without penalty. Use Form 7004 and enter the correct form code in the box provided for this purpose: code 12 for C corporations and code 25 for S corporations.
Be sure to submit the extension request no later than March 17. This can be done by paper or electronically.