Alaska S Corporation Tax Return: Everything You Need to Know
It is a detailed process that involves quarterly payroll tax returns, administering payroll checks, accounting and booking, and corporate returns.3 min read
2. Forming an S Corporation
3. S Corporation Considerations
4. Advantages and Disadvantages of S Corporations
Alaska S corporation tax return is a detailed process that involves quarterly payroll tax returns, administering payroll checks, accounting and booking, and corporate returns. An S corporation is a regular corporation that has elected through its shareholders to use a tax status that separates the corporation from its shareholders.
Alaska S Corporation Taxation
With S corporation status, the shareholders benefit from a limited liability in relation to debts, obligations, and any legal actions of the company. This is attractive to shareholders because it protects their personal assets. S corporations protect the shareholders from losing more than they have invested in the corporation. If the corporation declares bankruptcy or if the corporation is sued and found liable, the shareholder is not personally liable.
Alaska S corporations do not pay any income taxes, unlike C corporations. An S corporation with more than one shareholder is responsible for filing a tax return. The shareholders submit their personal income tax returns with their portion of the corporation's income or loss. This is the same as Limited Liability Companies (LLCs), partnerships, and sole proprietorships. To acquire the S corporation status from the Internal Revenue Service, IRS Form 2553 must be filed.
Forming an S Corporation
Forming a corporation requires several steps to be taken with the state.
- Select a name for the corporation.
- File the Articles of Incorporation.
- Appoint a registered agent to represent the corporation.
- Create a corporate records book.
- Draft the corporate bylaws.
- Appoint directors.
- Schedule and hold the first board of directors meeting.
- Issue stock with stockholders.
- Follow all state annual reporting requirements.
- Comply with all tax and regulatory requirements.
- File all necessary official documents with the state.
- State filing fees must be paid.
- File Form 2553 with the IRS to elect special tax status.
- Review what limitations exist pertaining to the type of businesses allowed to be Alaska S corporations.
Once formed, the S corporation must keep minutes of all stockholder and board of director meetings. The minutes must be stored in a safe location. There cannot be more than 100 shareholders, and those shareholders are not allowed to be LLCs or other corporations, some kinds of trusts, partnerships, or individuals with a non-resident alien status.
S Corporation Considerations
Although Alaska S Corporations come with the protection of personal assets and some protections against legal judgments against the corporation, it should be noted that there are exceptions to limited liability.
Raising capital is simpler for an S corporation due to the ability to issue and sell stock or other financial options. The sale of company stock may be subjected to both state and federal securities laws. Selling stock in the corporation can be used as a transfer of ownership. In Alaska, S corporations can only be one class of stock.
Audits of S corporations are not as frequent as sole proprietorships and partnerships. Shareholders also benefit from pass-through taxation, which helps them avoid double taxation. Tax returns are filed, but income tax is not paid. Any income profits or losses, relative to their ownership percentage, are instead filed through the shareholder's personal tax returns. Any self-employment taxes the owner incurs do not apply to salaries paid through the corporation.
An owner who is also an employee of an S corporation gains additional benefits including access to group insurance plans, any retirement and profit sharing plans, and bonus and stock options. Employees also tend to prefer to work with corporations due to the added benefit of stock options and stock bonuses, along with all other benefits available.
Advantages and Disadvantages of S Corporations
The main advantage of the S corporation is the taxation laws where a pass-through avoids double taxation. Other advantages include:
- The corporation is independent and can be run continuously even with the death or inability of one or more of the shareholders.
- Fractional ownership is made possible with the sale of stock ownership shares.
- Ownership is easily changed with the sale, purchase, or gifting of stocks.
Alternately, the disadvantages include:
- Any conflicts between shareholders may limit any decision making and stall progress.
- Bylaws may restrict the sale of stock or buy-back restrictions making it not possible to recover their initial investment.
- If corporation-owned assets appreciate and the corporation dissolves, the income taxes must be paid on the appreciation amount, which can be significant.
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