How to Keep Accounting Records for an S Corporation

For example, if your tax year ends on December 31, your Form 1120-S is due by March 15 of the following year. This would be the right option if you are looking for cheap or free accounting software but also need quality performance. However, although it does not offer many features like Xero or QuickBooks, Wave accounting software will cover most of your basic bookkeeping needs as an S-corp. If you want to keep accurate accounting and management of your S-corps business, the following are the best six accounting software that is right for this purpose.

Understanding S Corp Basis

Like revenue, expenses should be broken down into their various categories. For an S Corp bookkeeper, maintaining accurate balance sheets tops the list of must-dos. A balance sheet presents a complete picture of a business’s assets, ownership equity, and liabilities. These may include equipment, cash, account receivables, and intellectual property. If revenues are higher than expenses, the S bookkeeping for s corp corporation makes a profit.

What Sets S Corp Bookkeeping Apart from Other Business Entities

The bookkeeping records must extract these amounts from the company’s sales revenue data, expense reports, monthly bills and other relevant sources. Each shareholder has an amount at risk—the amount of money he stands to lose from his investments or loans to the company. A shareholder’s QuickBooks amount at risk is calculated as the adjusted stock basis plus the adjusted loan basis. The main responsibility of an S Corp bookkeeper is to maintain accurate records of all business transactions.

• Assets can include cash, equipment, intellectual property and accounts receivable.
• When forming or investing in an S corporation, shareholders may contribute property or cash to the company.
• Everything you need to manage your books year round and file your taxes, for one low monthly fee.
• Accrual basis accounting is suitable for businesses that offer terms on services rendered.
• To summarize, cash-based accounting is ideal for young companies with little-to-no inventory, with simple transactions where money changes hands upon receipt of goods.
• The accounting for an S-Corp is more complicated than personal accounting.

Services

For example, long term capital gains are passed through as long term capital gains. To fully enjoy the benefits of an S Corp status, such as protected personal assets and avoiding double taxation, you need to balance the pros with the cons that come with it. If you miss the due date, you may owe penalties, particularly if your corporation owes federal income tax.

• For example, long term capital gains are passed through as long term capital gains.
• Once complete, we can submit your corporate return directly to the IRS using TaxAct’s e-file option.
• In determining stock basis adjustments, it’s essential to consider other factors such as non-dividend distributions, nondeductible expenses, and noncapital expenses.
• This is to prevent owners from adjusting their compensation unreasonably in order to avoid paying higher taxes.
• Yet, it doesn’t mean the company has liberated itself from payroll tax.

• Schedule B includes additional details about the S corporation, such as your accounting method (cash or accrual).
• For more information and guidance on shareholder distributions, contact a tax professional.
• Subchapter S Corporations, also known as S Corps, are called ‘pass-through’ entities.
• This account should show the dollar amount of cash investments as well as the value of property donated to the company.
• Annually, shareholders receive a K-1 statement from the S corporation, detailing various items impacting their basis.
• So if you are planning to expand your business in the future, and you want to avoid reorganizing your business structure, you may want to consider alternatives to an S-Corp.
• If you need help with S corp bookkeeping, you can post your legal needs on UpCounsel’s marketplace.

Assets can include cash, equipment, intellectual property and accounts receivable. If the total amount of assets exceeds total liabilities, the ownership equity is positive. Each member’s portion in the ownership equity is in proportion to her shares in the corporation. It’s an informational document that lets the Internal Revenue Service (IRS) know how much income your business made and how much tax you owe.

• Accountants must maintain accurate records of the company’s transactions to determine if the S corporation made a profit, the amount of that profit and the amounts to be distributed to each member.
• Below are some strategies for managing and categorizing S corp revenues and expenses to streamline financial operations.
• Diligent attention to maintaining accurate basis records ensures shareholders can report income and losses accurately on their tax returns and stay in compliance with tax laws.
• An S Corp can use either cash-based or accrual-based methods to record their finances.
• This includes the capital contributions made to the business or the cost of the purchased stock.

Zoho Books software is famous for making collaboration among teams possible. Zoho Books is online accounting software that is the next software Accounting For Architects to make our list of the best accounting for S-corps businesses. It is also one of the best accounting software for small businesses in general. These adjustments are generally made at the end of the corporation’s taxable year. First, the basis is increased by income items, then it is reduced by distributions and finally by deduction and loss items.

The Effects of Revenue Recognition on Financial Statements

In other words, when the income and expenses consist of a simple purchase where money changes hands immediately, cash-based accounting makes good sense. If you use accounting software for your bookkeeping, you’ll find your expenses and revenue on a profit or loss statement. An important fact to remember about S corp bookkeeping is that you should track liabilities and assets separately from expenses and revenue. Make sure that you record an asset’s value as soon as you acquire the asset. You can calculate the value of an asset by adding the fees needed to secure the asset to the actual purchase price. S corp bookkeeping is an important part of running your corporation and maintaining your special S corp tax election.