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S-Corporation Accounting Checklist

August 18, 2018
Bookkeeping

Operating your business in the S-Corporation format can provide some amazing benefits. To avoid unexpected problems, you must take care of the basics. S-Corporations provide incredible audit protection. However, if you don't file your tax returns on time, you will dramatically increase your chances of an audit and the penalties for late filing. To avoid this, here is a checklist of items to take care of before the end of the year.

Reimburse Shareholder-Employees

Before the year ends, reimburse S-Corporation shareholders and shareholder-employees for any personally paid business expenses. For example, if they have business mileage on their vehicle, reimburse them this year to get the deduction on this year's tax return. Similarly, if someone has purchased office supplies on their personal credit card, reimburse them to get the deduction.

Verify Reasonable Shareholder Compensation

Before the last payroll of the year, verify that all shareholder-employees have received reasonable compensation for the year. In other words, if one of the owners is supposed to get a certain salary for the year, make sure he or she hits that target before the year ends. If one or more shareholder-employees does not have reasonable compensation for the year, be sure to pay that employee enough in wages. You must pay shareholder-employees reasonable compensation to get the S-Corporation to work safely over a duration of time.

True Up Shareholder Distributions

Before the end of the year, you want to double check that shareholder distributions reflect ownership percentages. If you have two equal 50-percent shareholders, make sure that the distributions paid to both shareholders match. If you don't make distributions that reflect shareholder's ownership percentages, the mistake may cause the IRS to terminate your Subchapter S status.

Conduct a Clean-up

If you use QuickBooks for accounting, make sure that both the accounts receivable and accounts payable record are not missing information. Be sure to do this clean-up before the tax return is prepared. Negative accounts payable and accounts receivable values indicate that your QuickBooks data needs additional transactions in order to reflect your income accurately.

No matter what your accounting system, check for absurdly high or low balances. If you see mistakes, clean the errors up if you can or outsource the work to an accountant or competent bookkeeper as soon as possible. Fixing the errors on your balance sheet will mean your profit and loss statement and tax return more accurately reflect your income for the year.

Halon Financial Accounts Program

Through our Halon Financial Accounts program, users who first come to Halon, our software can see bookkeeping problems, and we tell the user they need some corrections made. When the user agrees, we provide them a competitive price and send them to you to complete the work. Sign up now for free at Halon Tax.

Christopher Ragain, CPA

Christopher Ragain, CPA is the founder of Halon Tax and one of the industries top authorities on micro-business taxation and tax planning.

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