New Jersey S Corporation Taxes
S corps in New Jersey have specific tax requirements and benefits.
S Corp Tax Rates
An overview of the tax rates applicable to S corp owners.
Applying for S Corporation Status
Learn how to apply for S corp status in New Jersey.
An S corp may offer tax benefits if net earnings are over $60,000. We recommend ZenBusiness to start your New Jersey S corp.
S corps let income, deductions, and credits pass through to shareholders’ personal returns. A key advantage in New Jersey is avoiding corporate taxes. Income is only taxed once at the individual level.
An S corp lets income, deductions, and credits pass through to shareholders’ personal returns. A key advantage in New Jersey is avoiding corporate taxes. Income is only taxed once at the individual level.
You can start a New Jersey S corp by forming an LLC and electing S corp status with the IRS when applying for an EIN. Note: An S corp may offer tax benefits if you make over $60,000 in earnings.
S corps align with high-growth businesses. Benefits must outweigh administrative costs of running payroll and accounting. You must also verify S corp eligibility.
In an S corp, the income tax is paid through the owners in their personal tax returns. No tax is imposed on the S corp, and there are no dividends.
If any of the owners also are employees, they receive a salary, from which FICA taxes are withheld. Many S corp owners work in the business and some try to avoid taxes by not paying these people as employees.
Under the right circumstances, S corp tax status allows business owners to pay fewer taxes on their earnings. If you’re a solopreneur making $60,000 in net earnings, have $20,000 or more in annual distributions, and are looking for business tax savings, let Collective elect S corp status for your business.
S corps do not pay federal income tax on their profits. Instead, the profits are “passed through” to the shareholders who report the income on their individual tax returns. S corp shareholders pay self-employment tax on their wages. This is because S corps are pass-through entities and not subject to payroll tax.
S corp shareholders pay income tax on two types of income — your salary and your portion of S corp earnings. You’ll often hear these referred to as W-2 and K-1 income, respectively. Both get reported on your personal tax return.
S corps don’t pay federal corporate income taxes, so there is not really an “S corp tax rate.” S corp owners receive compensation for their work in the company as a reasonable salary, with the remainder of the company’s profits allocated among shareholders as distributions from the firm. Like other pass-through entities, S corps pass their earnings directly to their shareholders and aren’t taxed on their profits at the company level.
S-corporation taxation is similar to partnership taxation in that owners are taxed upon their share of the business’s income, regardless of whether or not it is actually distributed to them. Distributions from the business are not taxable so long as they are not in excess of the shareholder’s basis in the S-corporation.
Some S-corp owners have reduced their federal income taxes by paying themselves a low salary and taking the majority of their income in the form of distributions. If the IRS determines that a shareholder’s salary does not qualify as reasonable compensation, the S-corp can be penalized.