Who is the resgistered agent?
It’s a requirement by most states that each corporation or limited liability company (LLC) business entity have registered agent. The registered agent can be the business owners or a responsible third party who is domiciled in the same state as the corporation or LLC. The primary responsibility of the registered agent is to receive legal service of process notices, lawsuits notification, communications from the Secretary of State, any governmental organization and tax notices.
What is the S-Corp election?
S Corporation Stock and Debt Basis
Shareholder Loss Limitations
An S corporation is a corporation with an "S" election in effect. The impact of the election is that the S corporation's items of income, loss, deductions and credits flow to the shareholder and are taxed on the shareholder's personal return.
The two main reasons for electing S corporation status are:
Avoid double taxation on distributions.
Allow corporate losses to flow through to its owners
There are three shareholder loss limitations:
Stock and Debt Basis Limitations
At Risk Limitations
Passive Activity Loss Limitations
Each limitation must be met, and in the order presented, before a shareholder is allowed to claim a flow-through loss.
The fact that a shareholder receives a K-1 reflecting a loss does not mean that the shareholder is automatically entitled to claim the loss.
S Corporation Shareholders are Required to Compute Both Stock and Debt Basis
The amount of a shareholder's stock and debt basis in the S corporation is very important. Unlike a C corporation, each year a shareholder's stock and/or debt basis of an S corporation increases or decreases based upon the S corporation's operations. The S corporation will issue a shareholder a Schedule K-1.
It is important to understand that the K-1 reflects the S corporation's items of income, loss and deduction that are allocated to the shareholder for the year. The K-1 shows the amount of non-dividend distribution the shareholder receives; it does not state the taxable amount of a distribution. The taxable amount of a distribution is contingent on the shareholder's stock basis. It is not the corporation's responsibility to track a shareholder's stock and debt basis but rather it is the shareholder's responsibility.
If a shareholder receives a non-dividend distribution from an S corporation, the distribution is tax-free to the extent it does not exceed the shareholder's stock basis. Debt basis is not considered when determining the taxability of a distribution.
Loss or Deduction Flow-Through Items
If a shareholder is allocated an item of S corporation loss or deduction, the shareholder must first have adequate stock and/or debt basis to claim that loss and/or deduction item. In addition, it is important to remember that, even when the shareholder has adequate stock and/or debt basis to claim the S corporation loss or deduction item, the shareholder must also consider the at-risk and passive activity loss limitations and therefore may not be able to claim the loss and/or deduction item.
What is fiscal year?
You must figure your taxable income on the basis of a tax year. A “tax year” is an annual accounting period for keeping records and reporting income and expenses. An annual accounting period does not include a short tax year. The tax years you can use are:
Calendar year - 12 consecutive months beginning January 1 and ending December 31.
Fiscal year - 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.
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What is par value?
This is the lowest dollar value for which a share can be sold. Ex. A corporation with a par value of $.50 per share can not sell its shares less than fifty cent per share.