Corporations of all descriptions are required to file annual income tax returns in the United States. Some corporation owners are under the erroneous impression that if there are no taxes owing, the corporation does not have to file a return for that year. However, for all corporations, there are consequences for not filing a return regardless of how much tax is owed.
General Filing Requirements
Most corporations are required to file annual income tax returns by the 15th of the third month following the corporation's year end. For example, if the year end is December 31, the tax return must be filed by March 15 of the following year. If there are taxes owing, they must be paid at that time or the IRS will levy a late payment penalty. Even if no taxes are owing or if the corporation was inactive for the year, the return must still be filed on time to avoid late filing penalties. The amount of the penalty depends on the type of corporation.
For taxation years that start in 2010 and later, the late filing penalty has been significantly increased. The new penalty is $195 per shareholder or partner for each month or part of a month the return is overdue. For example, if the return for a subchapter S corporation was due March 15 with no extension filed and there are six shareholders, the late filing penalty assessed on the S corporation would be $5,850 if the returns were finally filed July 2.
The late filing penalties on a C corporation are not as severe as those for an S corporation. The penalties do not kick in for 60 days after the returns are late and are solely based on the amount of tax owing. The penalty is 5 percent per month or part month that the return is late up to a maximum of 25 percent of the tax owed. If there is no tax owing, there is no penalty levied. However, a corporation that does not file taxes for multiple years in a row may be subject to de-registration.
An limited liability company is a hybrid type of business entity. It defaults to being a partnership for tax purposes but the owners can elect to have it taxed as a corporation. If the LLC has never made the election, it will be subject to the same late filing penalties as an S corporation. That means that the penalties are $195 per partner/shareholder for every month or part month that the return is late. If the LLC has elected to be taxed as a corporation, it will attract no late filing penalty if no taxes are owing, but will run the risk of de-registration if returns are not filed for multiple years.
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