S-Corporations offer great benefits, but proper maintenance is crucial to avoid unexpected issues.
It’s not as simple as just filing a state form for tax savings and asset protection. Maintaining an S-corporation requires more effort, but the tasks are manageable and affordable. Here’s a checklist to help you maintain your entity and enjoy tax benefits and asset protection:
7 Key Points for Properly Maintaining Your S-Corporation:
- Corporate Documents
Ensure you have all essential formation components: Articles, Bylaws, Minutes, Stock Certificates, and Corporate Seal. Many people think they have an S-Corporation but haven’t filed their S-Election (Form 2553) or are out of compliance with the Secretary of State. - Annual Minutes and Board Meetings
Hold annual Shareholder and Director meetings. It’s a great write-off opportunity and crucial for asset protection. Even if you have an LLC ‘taxed as an S-Corp’, don’t skip this step. If you’re behind, do a ‘clean up’ and get on track. - Annual State Secretary of State Filings
Complete your state’s annual renewal process to avoid involuntary dissolution. Failure to do so can lead to operating as a sole proprietorship and potential IRS issues. - Regular Operations and ‘Using the Name’
Use your corporate name on all legal documents, advertising, website, and business cards for stronger asset protection. Make it clear that your company is doing business, not you personally. - Quarterly Payroll
Set up a proper payroll procedure for tax savings. Establish a realistic payroll level, file quarterly reports, and make deposits based on your situation. Magnolia Tax Services has a payroll matrix that can guide you in determining proper salary levels. - Tax Return Filing
File your 1120-S tax return on time (due March 15th, or September 15th with an extension) to maintain audit protection. S-Corporations are audited less frequently than sole proprietorships, but late filing increases audit risk and penalties. - Separate Bank Account and Accounting
Maintain a separate bank account for your S-Corporation and keep accurate records. This separation is crucial for tax purposes and asset protection. Mixing personal and business finances can lead to legal and tax complications.
By following these steps, you’ll maintain your S-Corporation properly, maximize tax benefits, and ensure strong asset protection. Remember, while these tasks may seem daunting, they’re manageable with proper planning and professional assistance when needed. The benefits of a well-maintained S-Corporation far outweigh the effort required to keep it in good standing.
