Gary Bode, CPA: NC 401S deserves as much consideration as IRS tax Form 1120-S. If you'd like a free initial consult, please call us at 399-2705.
Federal S Corporation tax return preparation, on IRS Form 1120-S, allows pass through of profit to the underlying shareholder’s Form 1040. 18 States follow the federal example, or just don’t require any S Corporation return. But NC requires a complex tax return tax (Form NC 401S), taxes S Corporations and is one of nine States requiring Estimated Tax Payments. NC doesn’t require with holding tax for non resident shareholders, but most States do. NC requires a copy of the federal return to be attached. And even if the IRS doesn’t require completing the Balance Sheet portion of tax Form 1120-S, NC requires it on their tax Form NC 401S. Why? Because it allows greater tax audit potential the simpler federal version doesn’t.
Multistate S Corporation Considerations
More and more often, NC based S Corporations have to file tax returns in multiple States. We stay aware of an S Corporation’s nexus, a taxation term meaning where a business has sales. This may determine where an additional tax return needs to be filed. Of course, your profit is only taxed once, but it can be apportioned across multiple State tax returns.
But there is diversity on how different States address S Corporation profit. You might think having additional nexus in a State that doesn’t require an S Corporation tax return (like WA, NV, SD and WY) means your corporation pays less tax. But NC just makes all profit taxable here in these cases! Ever progressive, NC allows apportionment to other States on the basis of sales. But some States use an older, more complex process involving sales, property owned and payroll.
We’re a Wilmington NC CPA firm specializing in small business tax preparation, including IRS tax Form 1120-S and NC 401S. If you’d like a free initial consult, please call us at 399-2705.
