Filing Taxes for a S Corporation With No Income

Filing taxes for a S corporation with no revenue entails completing and filing IRS Form 1120S to record the business’s income, losses, and deductions.

Filing taxes for a S corporation with no revenue entails completing and filing Internal Revenue Service (IRS) Form 1120S to record the business’s income, losses, and deductions. While an individual with no income may not be required to submit a tax return, a business trying to earn a profit must file a report whether or not it makes a profit.

Why File if the S Corporation Didn’t Earn Any Money?

This obligation applies to both standard corporations and Subchapter S corporations. Ignoring this rule may lead to fines for failing to file a return, even if the firm had no transactions. The purpose of the return is to calculate how much tax is owed and to ensure that the IRS receives all of the tax dollars due. The S corporation files Form 1120S in its first year of operation, indicating that it will serve as the company’s first return.

When a corporation hires someone to execute a job or provide a service, the firm submits a Form 1099 to notify the IRS that the provider received compensation. Companies, on the other hand, are not normally required to send a Form 1099 to a corporation.

The IRS has no means of knowing if a S corporation does not submit a tax return indicating that it had zero revenue in a particular year. When a S corporation fails to file, the IRS makes assumptions about taxes owing and issues a charge for that amount. The IRS does not presume that the company has no revenue.

Even though a S corporation does not pay income taxes, it must nevertheless file Form 1120S to keep track of earnings and losses. While it may seem that submitting a tax return in a year with no revenue is meaningless, it may still be in your company’s best interests, even if the law does not mandate it.

It creates a consistent paper trail with the IRS, which is particularly critical for a startup business.

It helps to prevent further scrutiny and audits, which are more probable if your filing habit is erratic.

It keeps track of earnings and losses. Shareholders are personally liable for taxes on the earnings they receive, but they may deduct any losses.

The Filing Procedure

When a corporation is founded, it is presumed to be a C corporation, which is subject to Subchapter C of the Internal Revenue Code. A C corporation must submit a Form 1120 tax return and pay taxes on its earnings. This is true whether or not the firm made a profit for its stockholders that year. If there are no transactions to report, the Form 1120 just includes zeros and the business’s identifying information, such as its name and employer identification number (EIN).

Partnerships and limited liability organisations (LLCs) that elect to be taxed as corporations are also required to submit Form 1120. Exempt organisations under Section 501 of the Internal Revenue Code are the sole exceptions to the norm. Typically, they are charities and other types of organisations. Even if they have certain forms of revenue, these businesses must submit a tax return.

When a C corporation decides to convert to a S corporation, it must submit Form 2553 to elect the new status and must file an annual tax return. S corporations are often small firms that desire to take benefit of a S corp’s limited liability while avoiding the double taxes of a C company. In the United States in 2007, roughly 4.5 million enterprises used this organisational structure, up from 2.7 million ten years before. This is more than twice the number of C corps during the same time period.

If the company is formed or converts to the S corp form of business during the second, third, or fourth quarters of the year, choosing a fiscal year other than the ordinary calendar year may be an option. Assume you formed your firm in July and immediately elected to be recognised as a S corporation. However, because to other obligations, you do not begin operations until April 1 of the following year.

You might submit an initial return covering the period from formation in July to the start of operations in April, as well as the 12 months after the commencement of operations. Your fiscal year would be April 1 through March 31, but your first return would cover the whole history of the firm.