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Most Asked Idaho S Corporation Questions

Does an Idaho S Corporation in Coeur d’Alene Require A Reasonable Wage?

Yes. Even though an Idaho S-Corporation uses a pass-through taxation method, owners/shareholders are able to differentiate between a wage and a disbursement. However, a reasonable wage must be paid out to those working in the business before any disbursements are paid out to other owners/shareholders. This reasonable wage must have been paid on a W-2 with employment taxes paid.

A reasonable wage is best determined by the replacement cost of that position on the open market.

Example: 

If the Idaho S-Corporation profited $58,000 this year and a reasonable wage is $75,000, then all $58,000 must be paid as the reasonable wage. Until the reasonable wage has been met, no disbursements can be made and all profits will be subject to additional self-employment taxes.

Does an Idaho S Corporation Provide Owners with Shares of Stock?

Yes. An Idaho S-Corporations can issue one class of stock with a maximum number of 100 shares.

Does an Idaho S Corporation Have a Perpetual Existence?

Yes. An Idaho S-Corporation has a perpetual existence that can outlive its original owners/shareholders.

Does Idaho S Corporations in Coeur d’Alene have Strict Ownership Rules?

Yes. An Idaho S-Corporations are very strict about who can become an owner/shareholder. In addition, this business entity can only issue one class of stock with a maximum of 100 shares.

Idaho S-Corporations in Coeur d’Alene are known for very strict owner/shareholder rules, but it can own almost anything other than another S-Corporation itself.

Eligible shareholders

  • U.S. citizens
  • Permanent residents
  • Single-member LLCs
  • Qualified sub-chapter S trusts
  • Testamentary trusts created by a will
  • Grantor trusts
  • Bankruptcy estates
  • Revocable trusts created as part of an estate
Does an Idaho S Corporation Have Flexible Tax Reporting?

No. If your business is formed as an Idaho S-Corporation, then there is no other taxation option available.

However, the IRS does not have a separate taxation category for Idaho LLCs. This allows the LLC members to elect at their own discretion a form of taxation that makes the most sense for their business. An Idaho LLC can elect to be taxed as an Idaho S-Corporation, but not the other way around.

Does an Idaho S Corporation Owner Pay Self-Employment Taxes on All Profits?

No. An Idaho S-Corporation can differentiate between W-2 wages and disbursements paid after a reasonable wage has been met. In the Idaho S-Corporation, W-2 wages and employment taxes are an expense to the company. Any profits thereafter are distributed, and taxes are paid as ordinary income on each owner/shareholders’ tax return.

Does an Idaho S Corporation Pay Idaho State Taxes?

Yes. Idaho has a corporate income tax, as well as certain special taxes applicable to an Idaho S corporations and LLCs. In addition, if income from your Idaho business passes through to you personally, that income will be subject to taxation on your personal Idaho tax return.

Idaho S corporations are required to pay a minimum tax of $20. An additional tax of at least $10 is required if the S corporation owes federal tax on excess net passive income or net recognized built-in gains.

 

Everything You Need to Know About Idaho C-Corporation Loans

Coeur d’Alene Idaho C-Corporation Loaning to Shareholders

An Idaho corporation can lend money to a shareholder. However, the IRS will reclassify the loan as a dividend distribution if the loan is not well documented. The loan must be a bona fide one, with a written promissory note signed and dated by both the lender (the Idaho corporation) and the borrower (the shareholder). The promissory note should state the time period for repayment and the interest rate to be charged.

Idaho Interest Rate

The Coeur d’Alene Idaho interest rate must be a reasonable one, based on current market conditions. However, if the principal balance of the loan does not exceed $10,000, the below-market interest rate rules will not apply. In fact, the Idaho interest rate can be as low as zero percent. This exception does not apply, however, if the principal purpose of the loan is to avoid Idaho federal tax. The IRS and the courts use the following criteria to determine if the CDA corporate loans to shareholder loans are really loans or should be treated as taxable dividend distributions:

  • Whether a ceiling existed on the amounts advanced
  • Whether or not security was given for the loan
  • Whether the stockholder was in a position to repay the loan
  • Whether there existed a repayment schedule or an attempt to repay
  • Whether there was a set maturity date
  • Whether interest was charged
  • The amount of the loan
  • The extent to which the shareholder controls the Idaho corporation
  • The earnings and dividends history of the Idaho corporation
  • Whether a promissory note was drawn up
  • Whether the Idaho c corporation made systematic attempts to obtain repayment
  • The Idaho corporation’s ratio of debt to equity

Rent Payments for Shareholder’s Personal Property

A Coeur d’Alene Idaho corporation can pay rent to a shareholder for the use of the shareholder’s personal property. The Idaho corporation gets a tax deduction for rent paid, and the shareholder reports rental income on his or her personal return. However, the IRS will reclassify rent as a dividend when payments are unreasonable. This may happen, for example, when an Idaho corporation in Hayden pays rent to a shareholder over the fair market rental value of the property.

Most asked Idaho C-Corporation questions

Is an Idaho C Corporation Considered a Disregarded Entity?

No. A Coeur d’Alene Idaho C-Corporation is a separate business entity from its owners/shareholders. Its income does not pass-through to shareholders and, therefore, is not disregarded. This Idaho business entity has natural rights as you would expect with a living person.

Is an Idaho C Corporation Taxed at Corporate Level?

Yes. An Idaho C-Corporation pays a flat 21% taxes on the profits at the corporate level first. The Idaho C-Corporation will file its tax return separate from all owners/shareholders. After that, individual shareholders pay taxes on dividends paid by the corporation at a reduced, qualified dividend rate.

Can an Idaho C-corporation own an LLC in Coeur d’Alene?

  • Since a C-corporation is its own legal identity (with natural human-like rights), a C corporation can own an interest in an LLC.
  • An LLC has little rules on who can have ownership/membership, and A C-corporation has little to no regulations on what it can own. This is an excellent paring.

Can an Idaho C-corporation own an S-corporation?

  • An Idaho S-corporation can own a C-corporation.
  • But a C-corporation cannot own an S-corporation.
  • An S-corporation has little rules about what it can own but has strict rules on who can own it. Idaho S-corporations can only be owned by an individual, who is the US. Citizen or a single-member LLC that is taxed as an Idaho Sole Proprietor.
  • Whereas the Idaho C-corporation has little rules about who can own it, or what it can own, but would be disqualified to purchase shares of an Idaho S-Corporation. The Idaho C-corporation is neither an individual nor a single-member LLC being taxed as a pass-through, which are the requirements for an Idaho S-corporation ownership.

Filing an Idaho C-Corporation 

An Idaho C-Corporation can have considerable advantages to pass-through entities as to greater fringe benefits. As employees, owner-employees of an Idaho C-Corporation qualify for certain employee fringe benefits.

Example: Idaho Health insurance can be wholly tax-free to Idaho C-Corporation owner-employees (through full deduction by the C-Corporation and full tax exemption for the owner-employee).

Another advantage of the Idaho C-Corporation is that they are less likely to be subject to passive loss deduction limitations. These limit the opportunity to deduct losses from activities the taxpayer doesn’t “materially participate” in, against income from investments or other businesses.

Another tax disadvantage of Idaho C-Corporation status is its limited ability to report for tax purposes on the cash method of accounting, which generally defers tax as compared to the accrual method.