| Shareholders' Federal Income Tax Payments: S Corp |
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This form is used by shareholders to pay taxes on non-salary distributions.
C-corporations: Shareholders must pay taxes on any dividends they received during the quarter.
If your shareholders received a salary or bonus from the corporation and no other distributions, they do not need to
use this form; the corporation should have automatically deducted regular payroll taxes.
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| S-corporations: Shareholders must pay taxes on their portion of the
S-corporation's net income (after salaries and other
expenses).
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| Forms to use | |
1040-ES Worksheet
1040-ES Coupon |
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| Amount due | |
15% to 35% on your share of the business' net income (plus your other personal income).
| | | Single | | Married | | Hd Household | Mar/Fil Sep |
| 10% on first $ net income | |
| 10% on first $ net income | |
8,500 |
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17,000 |
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12,150 |
8,500 |
| 15% on next income up to: |
| 34,500 |
| 69,000 |
| 46,250 |
34,500 |
| 25% on next income up to: |
| 83,600 |
| 139,350 |
| 119,400 |
69,675 |
| 28% on next income up to: |
| 174,400 |
| 212,300 |
| 193,350 |
106,150 |
| 33% on next income up to: |
| 379,150 |
| 379,150 |
| 379,150 |
189,575 |
| then 35% | | | | | |
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| Distributing profits | |
A corporation's cash must be kept separate from the shareholders' personal accounts.
The only way to get cash (or other assets) out of your
corporation is to take a salary or to pay dividends.
The IRS requires that you take a salary if the earnings came from your efforts, not the general
assets of the corporation. In addition, taking a salary (or bonus)
can be the best strategy if you want to maximize SEP (similar to IRA) retirement payments.
However, the two drawbacks are that
you have to pay employment taxes (roughly 20% of your salary) as well as state and federal
income taxes.
Profits that came from the general assets of the corporation (not your personal efforts) can
be distributed through dividends. Shareholders must pay income tax on dividends, but no employment
taxes are paid.
As you can see, tax planning is critical. Not only do you have to determine the correct mix
of salary versus dividends, but C-corporations can choose when they want to declare dividends
(and therefore when the shareholder pay taxes).
S-corporation shareholders must pay quarterly income taxes on their share of the corporation's
net income regardless of whether it was paid to them. Because of this, many S-corporations
routinely distribute all their net income to shareholders quarterly. If the shareholder is
directly involved in the business, we suggest that
you consult a tax advisor on whether these shareholders must declare their total income as a
salary (with payroll deductions) or if a portion can be dividends.
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| To avoid penalties | |
To avoid penalties, you must pay 90% of this year's tax or 100% of last year's tax in normal employment
withholding or estimated tax (this form). There are special requirements if your household income
was over $156,400 or you are a fisherman. Please see 1040ES instructions.
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How shareholders should complete the form
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| Line | What to enter |
| 1 | Take your share of the the annualized net income that you calculated with
IRS 1040 Schedule SE.
and add any other income you (or your spouse if you file jointly) expect to earn this year. |
| 2 | To avoid IRS fines for incorrect estimates, just use the standard deduction.
For 2008, this is $10,900 for married filing jointly; $8,000 for head of household and $5,450 for single. |
| 3 | Line 1 minus line 2 |
| 4 | Multiply the number of personal exemptions by $3,500 |
| 5 | Line 3 minus line 4 |
| 6 | Tax. See tax rate schedules on page 2 of the instructions or the information
shown above. |
| 7-8 | Adjustments for alternative minimum tax, which is usually 0, unless you
had large write-offs. |
| 9-10 | Adjustments for credits, which are usually 0, unless last year
you had tax credits and they still apply. |
| 11 | Self-employment tax. See Schedule SE to calculate. |
| 12 | Other taxes, which include employment taxes for household employees plus annuity,
endowment or IRA taxes. |
| 13 | Add lines 10, 11 and 12 and subtract any earned income credit.
Earned income credit is not available to partner/owners of businesses. |
| 13c | Tax due this year. |
| 14 | Enter the smaller of 90% of line 13c or last year's tax on your
1040 return. Note. If you earned more than $156,400 last year, you should enter 90% of line 13c
or 110% of last year's tax. |
| 15 | Income tax that will be withheld during the year
through payroll deductions (from other jobs). |
| 16 | Tax that must be paid quarterly this year: Line 14c minus line 15. |
| 17 | Deposit now: Divide line 16 by the number of quarterly due dates
remaining before next April 15th, i.e. if you begin business on June 30, you will have two due dates: September 15th and January 15th. |
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| Due date | |
April 15, June 15, September 15, January 15. |
| To pay
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- Pay electronically
- Pay via credit card (with a 2-3% service fee). There are two approved providers:
- Link2Gov Corporation at (888) 729-1040. For questions call (888) 658-5465 or visit
www.pay1040.com
- Official Payments Corporation at (800) 272-9829. For questions call (877) 754-4413 or visit
www.officialpayments.com.
In addition, you can use your Discover card for no service fee if you file through TurboTax or Quicken Products.
- Mail your check with Form 1040ES to the IRS.
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| Questions? | |
Call the IRS information hotline 800 829-1040. For forms, call
(800) 829-3676 or obtain them online at http://www.irs.gov/formspubs/index.html.
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