Proving once again that too many people are setting up corporations without having a clue as to what they are doing, I received the following question via my AnswerWay.com account.

Hello,

I am president of an s-corporation in Florida and I have not had any income or expenses as I did not use that company yet. I would like to make sure I have filled in properly my 1120S income tax return.

Having had no activity I have put zeros in all the fields and I am declaring $0 for tax due.

My questions are :

Is this ok?

Is there any other form or schedule that I have to send in with?

What about my personal 1040EZ income tax return? Do I have to mention anything about the s-corp. on it?

If I had had some income, where would I have mentioned it?

I thank you very much for your help.

My answer:

You are correct in sending in an 1120S with zeroes in the appropriate places. Even if a corporation has no activity, you must file a tax return with IRS telling them that fact. If you don’t, IRS could very easily come back years later and accuse you of failing to report huge amounts of income.

As a shareholder of an S corp, you should not be using 1040EZ for your personal taxes. You need to use the regular 1040 and attach Page 2 of Schedule E to show your S corp and its pass-through income for this year. Even if it’s zero, you should show it on your 1040.

I hope this helps.

Good luck.

Kerry Kerstetter

I like these quotes from Thomas Sowell

No matter how much people on the left talk about compassion, they have no compassion for the taxpayers.




To liberals, “compassion” means giving less productive people the fruits of the efforts of more productive people. But real compassion means enabling less productive people to become more productive themselves. That way, the poor have not only more material things but also more self-respect, as well as more respect from others, and the society as a whole has a higher standard of living and less internal strife.

The third rail – Good overview of the Social Security house of cards by George Will.

DeMint calls for tax changes – If anyone needs a concise explanation of why many corporations have shifted operations out of the US, it’s this:

America’s corporate tax rate — about 35 percent — is the second-highest in the world, DeMint said. That makes it more expensive for U.S. companies to export products than it is for companies in other countries to export them, he said.

Our rulers think they can just raise taxes on businesses and they will just gladly pay them without making any changes in how they conduct their operations. The truth with businesses is the same as it is for everything else in life. When costs go up, management looks for less expensive alternatives. It’s not rocket science; but such common sense evades our rulers who are driven to raise taxes and then are shocked when their targets take steps to avoid paying them.