Essential IRS and Georgia (GA) State Filing Requirements for S Corporations

A Guide to Tax Compliance and Best Practices for S Corporations and Single-Owner LLCs in the state of Georgia

Federal Requirements

1. Electing S Corporation Status for the LLC

For a single-member LLC to be treated as an S Corporation, both federal and state procedures must be followed.

Federal Election (Form 2553)

• Form 2553: The single-owner LLC must first file Form 2553 with the IRS to elect S Corporation status at the federal level. This must be filed within 2 months and 15 days from the beginning of the tax year the election is to take effect.
• Eligibility: The LLC must meet S Corporation eligibility requirements:
  • It must have only one owner/shareholder.
  • The owner must be a U.S. citizen or resident alien.
  • Only one class of stock (ownership) is allowed.
  • Late filed S Corp elections can be made after the initial filing due date under certain conditions

2. Form 1120-S: U.S. Income Tax Return for an S Corporation

S Corporations are required to file Form 1120-S annually to report the corporation’s income, deductions, gains, and losses. This form must be filed by the 15th day of the third month after the end of the corporation’s tax year (usually March 15 for calendar-year S Corps). Even though S Corps generally do not pay income tax, this form is necessary to report corporate financial activity.

3. Schedule K-1 (Form 1120-S): Shareholder’s Share of Income, Deductions, Credits, etc.

Each shareholder must receive a Schedule K-1 from the S Corporation, detailing their share of the company’s income, deductions, and credits. The shareholders report this information on their personal tax returns. The K-1 forms must be prepared and distributed by the S Corporation by the same deadline as the Form 1120-S filing.

4. Estimated Tax Payments

S Corporations themselves generally do not pay federal income taxes, but shareholders may need to make estimated tax payments on their personal tax returns for any income passed through to them. If shareholders expect to owe $1,000 or more in taxes when they file, estimated payments should be made quarterly.

5. Payroll and Employment Taxes

If your S Corporation has employees (including yourself if you provide services to the company), the corporation is required to handle payroll taxes. This includes withholding federal income tax, Social Security, and Medicare taxes, as well as filing employment tax forms such as Form 941 (Employer’s Quarterly Federal Tax Return) and Form W-2 (Wage and Tax Statement).

6. Reasonable Compensation

As a shareholder who also performs services for the S Corporation, you are required to receive a reasonable salary for your work. The IRS closely scrutinizes this to ensure wages are properly classified and payroll taxes are withheld on those wages.

State of Georgia

1. Electing S Corporation Status for the LLC

• Once the IRS has approved the S Corporation election, Georgia automatically recognizes the LLC as an S Corporation for state tax purposes.
• There is no separate election required at the state level, but ongoing compliance requirements exist to maintain the tax advantages.

2. Filing Georgia S Corporation Tax Return (Form 600S)

Once the LLC is treated as an S Corporation, it must file a Georgia Form 600S annually. Even though the business is a pass-through entity for federal tax purposes, Georgia still requires this form to be filed to report state-specific income and tax details.

• Form 600S must be filed by the 15th day of the third month following the end of the tax year (typically March 15 for calendar-year filers).
• Estimated Tax Payments: If the LLC expects to owe $500 or more in Georgia taxes, it must make estimated tax payments throughout the year.

3. Annual Registration with Georgia Secretary of State

Even though the LLC has elected S Corporation status for tax purposes, it remains an LLC in legal structure. Therefore, it must maintain its legal status by renewing its annual registration with the Georgia Secretary of State. This renewal is due every year before April 1.

• The registration can be filed online through the Georgia Secretary of State’s website.
• There is a small registration fee, and failure to file could result in penalties or administrative dissolution of the LLC.

4. Owner’s Payroll and Reasonable Salary Requirement

As an S Corporation, the LLC’s owner must pay themselves a reasonable salary for the services they perform for the company. This salary is subject to payroll taxes (Social Security and Medicare). The remainder of the profits can be distributed as dividends, which are not subject to self-employment taxes.

• Payroll Taxes: The owner’s salary must be subject to Georgia state income tax withholding, along with federal income taxes.
• Reasonable Salary: The IRS requires that the salary be “reasonable” based on the services provided and industry standards.

5. Separate Books and Records

The single-owner LLC must keep separate accounting records for the S Corporation and personal finances. This ensures compliance with state and federal regulations and helps maintain the liability protection offered by the LLC structure.

• Corporate Formalities: Even though the LLC has a single owner, it’s crucial to maintain separate financial statements, books, and payroll accounts for the S Corporation to avoid potential legal issues or loss of limited liability protection.

6. Ongoing Compliance and Deadlines

To maintain compliance, the LLC must:

• File the Georgia S Corporation return (Form 600S) annually.
• Renew the Georgia annual registration by April 1 each year.
• Pay Georgia estimated taxes if necessary.
• Ensure that the owner receives a reasonable salary for services performed.

7. Tax Treatment of Distributions

Distributions to the owner that are not part of the salary are considered dividends and are not subject to self-employment tax. However, Georgia state income tax applies to all income earned from the business.

Does the State of Georgia Require an LLC Single-Member Owner to Have a Board of Directors if Filing as an S Corporation?

No, the State of Georgia does not require a single-member LLC that has elected to be taxed as an S Corporation to have a board of directors.

An LLC is structured differently from a corporation, and while S Corporations follow certain tax rules under the IRS, the legal structure of the business remains an LLC. LLCs are generally not required to have a board of directors unless they choose to adopt a more formal corporate structure in their operating agreement.

For single-member LLCs, the owner typically has full control over the business without needing to create a formal board of directors, even if the LLC elects S Corporation tax status. However, maintaining corporate formalities such as keeping accurate financial records and ensuring proper documentation is crucial for tax compliance and liability protection.

In summary:

• LLC Structure: No requirement for a board of directors.
• S Corporation Tax Status: Only affects how the LLC is taxed, not its internal governance structure.

A single-owner LLC taxed as an S Corporation in Georgia can benefit from significant tax advantages, but strict adherence to the state’s requirements is essential. By following these guidelines, your business can maintain compliance and maximize the tax benefits of S Corporation status.