How to Do Accounting for an S-Corp How to stay organized with bookkeeping, payroll and finances for your s corporation

If you form an S corporation, your tax status is not the only thing that will need to be treated differently when it comes to accounting and recordkeeping. A stable, reliable accounting structure allows you to track profitability, maintain tax preparation and illustrate compliance if a the IRS or state requests your records. This guide steps through what you need to know in order to get your accounting squared away for an S-Corp and includes best practice advice on how to keep everything tidy.

Learn some of the first steps to managing accounting for an S-Corp

But before you create the accounts and establish the processes, understand two aspects that often complicate s-corp accounting setup: 1) owner compensation and distributions; 2) separating personal from business financials. Owners generally would receive a modest salary down to payroll taxes, and any remaining profits as an owner's draw. It is imperative that your accounting separate wages from distributions and keep track of payroll liabilities, payroll tax payments, as well as any benefits the company offers.

Select a chart of accounts which is specific for the company

The chart of accounts is the soul of bookkeeping. Develop categories that mirror your business: revenue streams, cost of goods sold (if applicable), general operating expenses organized into like groups (rent, utilities, professional fees), payroll and related tax liabilities, owner distributions and retained earnings. Make the chart simple, but detailed enough that each entry should go to the right account. Assigning: Numbering accounts serves to keep a list organized as it grows.

Establish consistent bookkeeping practices

Choose how often you will enter your transactions and perform a reconciliation, probably the very least of monthly. Establish a standard of classifying expenditures and deposits. For S corporations, owner draws should be recorded as distributions, and not expenses; improperly classifying them can distort reported profit and income tax records. Have a structure in place so everyone doing the bookkeeping works under one set of rules.

Establish commercial banking and credit accounts in a separate names

Keep personal and business funds separate by utilizing a dedicated checking account and credit card. [Deposit] All business receipts into and All business expenditures from those accounts. Not only does this make bookkeeping a breeze but it also adheres to the legal protection of an S-Corp and simplifies tax reporting.

Implement payroll correctly

One of the most important requirements for many S corporations is that owner-employees be paid a reasonable salary. Institute payroll to withhold federal and state income taxes, and track and turn over payroll taxes. Monitor related payroll liabilities and wages in such accounts. Keep related records, such as payroll records that show wages paid to employees and time cards.

Owner Distributions and Basis for Track Owner.DOM (line 5).

Keep record of shareholder distributions separately than payroll. Keep a basis schedule for shareholders detailing their stock basis and adjustments for contributions, distributions and income or losses allocated. Tracking of basis is important as it affects the taxability of distributions and loss deductibility on a per shareholder basis.

Balance bank and credit accounts every month

By reconciling every month, you make sure the transactions you’ve recorded agree with bank statements and catch errors or fraud sooner rather than later. Balance all business checking, savings, and credit card accounts. Clean up items and reversing entries such as bank fees or interest. Regular reconciliation helps to maintain the accuracy of s corp finances and makes quarterly and yearly reporting easy!

Keep supporting documentation organized

Keep invoices, receipts, contracts and bank statements in an organized manner. Good documentation will help when taking off deductions and justify income also keep you on the up-and-up in an audit. Establish a filing system, whether digital or physical, and always maintain relevant naming conventions and retention schedules that comply with legal standards.

Implement internal controls

Install elementary checks on the inside to safeguard assets and keep an accurate record of financial data. Segregate responsibilities whenever feasible, such as receiving funds, recording transactions and reconciling accounts, which should be performed by different individuals. Mandate approvals on big spend and leverage vendor validation to avoid duplicate or fraudulent payments.

Gather for tax reporting and estimated tax payments

S corporations generally file an information return and have income passed through on an individual basis to shareholders who report it. Keep adequate records of taxable income, allowable deductions, and allocations to shareholders so that year-end reports are accurately prepared. Plan for estimated tax payments quarterly at the shareholder level if exceeded distributions and pass-through income result in tax due.

Produce regular financial statements

Produce monthly or quarterly profit and loss, balance sheet and cash flow analysis. These disclosures leave owners well informed about performance and liquidity and contribute to making management decisions. Standardize reporting periods and compare against budget or previous periods to trend your issues.

Comply with your payroll tax and reporting obligations

Failing to make payroll or tax deadlines can result in penalties and interest. Track deposit dates, payroll tax returns due, and deadlines for information returns. Keep a list of compliance deadlines, add a name to each task and have one member of your staff be responsible for its completion.

Establish year-end close plan

End of the Year Accounting An out-of-the-box year-end accounting and reporting includes final reconciliations, adjustments for depreciation and accruals, capital basis verification and preparation of your year end reports. Plan early, assemble supporting documents and examine accounts that often need adjustments, like prepaid expenses, accrued liabilities and payroll tax.

Scaling and policy documentation let’s also think about scaling and policy documetation.

Nurture your chart of accounts and accounting procedures as the business gets bigger. Determine expense classification, approval limits, and reimbursement operat­ing guidelines in writing to ensure consistent application. The beauty of scalability is that your accounting system can grow to process more transactions without losing any clarity and control.

Conclusion

A systemized s corp accounting structure will make tax time less harrowing, provide better insight into your business, and makes compliance with payroll and reporting much easier. It adds a financial backbone to support growth and shield owners—by setting up a well-organized chart of accounts, separating business and personal expenses, maintaining regular bookkeeping practices and reconciliations, tracking shareholder transactions. Keeping regular financial reports and being disciplined with documentation keeps managing s corporation finances feasible and efficient.