S-Corp Tax Deposits

Chris Wittich

Generally speaking, S-Corporations do not pay tax.  If they were previously a C-Corp it’s possible they could run into some built-in gains, but those are somewhat unusual.  A true S-Corp shouldn’t pay any tax, but sometimes they do need to make a tax deposit.  No tax liability, but a tax deposit required?  Yes it’s as strange as it sounds.

For fiscal year S-Corps that have individual shareholders, a deferral period occurs between the fiscal year-end and the calendar year-end that the individual shareholders have.  That deferral creates a tax benefit the IRS wasn’t too pleased about.  So they created a tax deposit system where the S-Corp calculates the tax being deferred and makes a deposit with the IRS for that amount.  Every year the company re-calculates and if the deferral decreases, the S Corp gets a refund or a partial return of their deposit.  If the deposit increases, the S-Corp owes more money to increase the deposit.

For example, a 9/30/13 fiscal year S-Corp reports income to the shareholders based on that fiscal year.  In October, November, and December 2013 the company is still making money but that won’t be reported to the individual shareholders until 2014.  So a tax deferral is created.  Form 8752 is used to calculate the tax benefit of the deferral and the IRS hangs onto that money until it gets re-calculated the next year.  Doesn’t that just sound like a blast?


The Next Owner


Why Do They Send Corrected 1099s?