Annually, millions of companies worldwide file corporate taxes which can really be a cause of concern due to the complexities involved. But to truly understand what corporate tax preparation is all about, it must be understood that businesses are classified into three main categories: small, medium, and large. Understanding how a business is classified is beneficial since the each category has its own requirements. First, a business corporation is technically known as small if its annual gross income does not exceed $2 million. Thus, many professional financial advisers often suggest to a small business to become a corporation to lessen tax costs and prevent personal lawsuits.
A critical information you should learn about corporate tax preparation are various income and deductions of a corporation which must be reported according to the annual accounting method used by the business. Usually, two known methods are being used today – the Cash Basis and the Accrual Basis. Knowing the difference between the two is good since the reports submitted to the authorities must be accurate and complete. In situations where your business apply the Cash Basis method, then corporate tax preparation should include income tax on the year it was received and minus the business-related expenses in the tax year it was paid.
On the contrary,when the Accrual Basis method is applied, there’s a different way to do corporate tax preparation. Preferably instead of making deductions of business related expenses in the tax year it was paid, the deduction must be made on the year those expenses accrued. At this point, you understand why corporate tax preparation is a complex process since it depends on some factors beginning with the accounting method. The following list gives you a rundown of what you need for corporate tax preparation:
1) A copy of the previous corporation tax return filed with the IRS, state, & city.
2) The filing receipt you received from the state where the business was incorporated.
3) The corporation’s federal Employer Identification Number (EIN) given by the IRS and the State Identification Number from the state where it was incorporated.
4) Documents filed and accepted by the IRS and the state if the corporation has elected to file as a subchapter S corporation.
5) A copy of your state sales tax certificate.
There are still some forms that can be submitted so it would be good to solicit the opnion of a corporate tax preparation specialists.
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