Tax Deduction Consulting: S Corporations Helena MT
Company: Estate Conservation Associates
Franklin & Marshall College A.B.
Stanford University M.A.
Years Experience: 34
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Malmstrom Afb, MT
Tax Deduction Consulting: S Corporations
Deductions on an S Corporation
In order to understand the deductions on an S Corporation, it is necessary to understand the basic tax structure the S Corporation and how it differs from other corporate entities.
An S Corporation is a corporate entity that has elected to be taxed under the provisions of Subchapter S of Chapter 1 of the Internal Revenue Code. This allows the corporation to avoid paying taxes directly on its profit, but rather to pass the profit on to the shareholders who pay the taxes on their individual income taxes. S Corporations are limited to corporations with less than 100 shareholders which normally, but not necessarily, makes them small business entities. The deductions on an S Corporation are obviously treated differently than on a normal corporation.
Although the deductions on an S Corporation are treated different for tax purposes, this is really more a matter of how the tax is computed and even more importantly how the actual tax filing is done. In a non-S Corporation, the forms that are filed treat many business expenses as deductions from the taxable profit. Since the profit in the S-Corporation is going to be distributed to the stockholders and filed as income on their individual Form 1040s, the cost of doing business expenses are considered just that, expenses, rather than deductions.
The items that would appear on a list of allowable corporate tax deductions are really just the costs associated with doing business such as insurance and travel expenses. These appear on a profit and loss statement in a slightly different form in the S Corporation. They need to be deducted from the actual income of the Corporation before the distribution is made stockholders. Since they are deducted from the income on the accounting statements of the Corporation, they are still not taxable profit regardless of the type of corporate structure.
In other words, deductions on an S Corporation are no different than any other allowable business expense and are subject to the same limitations and documentation requirements of any other business entity. The only difference that really exists is how they appear on the actual filed tax returns. The S Corporation will, ultimately, be calculating its "real" or "retainable" profit in the same manner, but the profit will be passed on the stockholders who will then enter it as income on their individual tax returns.
The individual stockholders, of course, will be able to reduce their tax liabi...