Living in Honolulu feels like living in paradise at times. The island is home to friendly people, endless outdoor adventures, and perfect weather. From delicious food, incredible beaches, locally grown coffee, and famous surfing, there’s something here for everyone. The benefits do come at a cost, though. The higher cost of living, or “paradise tax,” encourages many locals to take the entrepreneurial route of starting their own businesses!
Corporate tax filing in Honolulu can be a confusing matter. Corporations have their own tax forms, special deductions, and different choices on how to be taxed. Here are two different tax options corporations can choose:
C corporation: This is a traditional corporation. When initially forming a corporation, it’s automatically treated as C corporations for federal tax purposes. These businesses pay corporate income tax on profits, and their shareholders pay taxes on their salaries and dividends. These corporations face what’s sometimes called “double taxation,” where the dividends get taxed at both the individual and corporate levels.
S corporation: These corporations do not pay any corporate tax. Small businesses can avoid double taxation by choosing to be taxed as an S corporation, saving them hundreds of thousands of dollars annually. Their profits and losses pass through to the shareholder’s personal tax returns, who pay taxes on the profits at their personal income tax rates. To be taxed as an S corporation, you must fill out and submit form 2553 with all shareholder’s signatures. S Corporations must meet the following requirements:
- Be a domestic corporation
- Have only one class of stock
- Have 100 or less shareholders
- Not have corporations, nonresident, or partnerships as shareholders
Corporate taxes can be a confusing matter, and it pays to get advice from a tax professional like MFI Works! Filing for an S Corporation can be advantageous for small companies, but one small filing mistake can send your company back to the C corporation status. Our team knows the system inside and out and can advise you on what type of corporation is best. We work hard to maximize your tax savings and corporate deductions. If you need help with your corporate tax filing in Honolulu, we’re happy to help! You can schedule a consultation on our website.
