Q:

One of your responses to a guy about incorporating included the observation that a minimum tax is due from corporations.

My accountant is unfamiliar with such a Federal requirement.   Were you referring to a State statute?   Or is he in need of enlightenment?

A:

The $800 annual minimum tax to which I was referring is levied by the State of California on any corporation chartered in that state or chartered in other states, but operating inside the California borders.  It means that even if a corp has no net profit, or even a huge operating loss, there is still a tax of $800 due to the rulers of the PRC.

Luckily, there is no similar thing with Federal corporate taxes.  Those are based on net taxable income.  If there is a loss or a break-even, there is no Federal tax due.

On a related issue, this is as good a time as any to once again remind people of how important it is to always file corporate income tax returns, even if there is a loss or no activity.  Sending IRS the 1120 showing the actual financial results for the year is a prudent self defense measure that will prevent IRS from accusing the corp of evading taxes on millions of dollars of income several years after the fact.  I have seen this happen on several occasions to people who didn't feel it was necessary to file 1120s when there was no tax due.  That assumption turned into some very expensive messes when IRS came after non-filing corporations.

I hope this helps you and your accountant understand this aspect of corporate taxes.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/02/2005 05:20:00 PM Send this post: