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Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 322
Experience:  Tax Accountant at Praxair, Inc.
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I have been in business years. i became involved in the

Customer Question

i have been in business for four years. i became involved in the S-corporation. i paid the corporation so money every months and i thought it was for my upcoming taxes for the following year. am i right in assuming this info?
Submitted: 1 year ago.
Category: Tax
Expert:  Jonathan Tierney replied 1 year ago.

Hi, my name is ***** ***** I can help. S corporation shareholders' receive a Schedule K-1 from the corporation to report the corporation's income on their personal individual return. This allows the S corporation to avoid paying federal taxes on the corporate level. As far as federal income tax, the S corporation should not collect anything from you.

However, if the corporation does business in several states, and those states allow the corporate to file a composite return on behalf of its nonresident shareholders. This allows the corporation to take care of its shareholders' filing requirements in their nonresident states and pay the tax on their behalf. Filing a composite return relieves nonresident shareholders from the burden of filing nonresident income tax returns in every state the corporation does business. A large business that does business across the country could mean a shareholder would be required to file in 40 states! If the corporation did not get reimbursed for the tax it would have to treat the taxes paid on your behalf to the states as a distribution, and S corporation rules do not allow for disproportionate distributions to shareholders.

I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions.

Thanks, Jonathan