Dear Tax Talk:
I created an S corporation in February 2007. There has been no income or expenses generated since inception, and no employees hired. What end-of-year tax forms am I required to complete?
By the way, I want to "hold" this
incorporation for future use, since nothing profitable
was done this year (2007). I would prefer not
to dissolve it, if possible.
Many people form corporations every year with
the intention of starting a business but they
never get it off the ground. There is no IRS requirement
that a corporation have activity to continue in
existence. In fact, corporate existence is governed
by the state of incorporation. So long as the
corporation is active under its state statutes,
the IRS will consider it a valid entity whether
or not it has activity.
Check out Bankrate's 2008 Tax Guide for a complete list of tax forms you need if you are a business.
When you incorporated you should have completed Form SS-4, application for a federal employer identification number. As part of the application, the IRS asks when you first expect to have employees and the corporation's tax year-end.
These two questions control when
the IRS will begin expecting payroll and income
tax forms from the corporation. The IRS will send
a written reply assigning the Employer ID Number,
or EIN, to the corporation and in that letter
will explain your filing requirements.
If in the SS-4 application you indicated that you would have employees at a certain point in the future, the IRS is expecting the corporation to file Form 941. Look to the EIN letter for the date that the IRS expects you to file this payroll form.
Even if you have no employees,
it is a good idea to file a zero form 941 quarterly
so as to avoid future inquiries from the IRS.
If the due date of the first 941 has passed, there
is no penalty for filing a zero return late. An
annual Form 940, relating to unemployment tax,
is due by Jan. 31.
You can eliminate the quarterly filing requirement by indicating in Form 941 Part 3 that you do not expect to pay wages in the future. The corporation can later reactivate payroll by filing and paying its payroll taxes quarterly.
The corporation's tax year governs the due date for its annual corporate income tax return. An S corporation will usually be required to use December as its fiscal year end. A corporate income tax return is due by the 15th day of the third month following the close of the fiscal year. An S corporation with a December year-end then should file Form 1120S by March 15th to avoid penalty. As there was no activity, the return should be completed with zeroes for monetary figures and answering the appropriate questions thereon.