I am using the s-corp for consulting services and have used it for last two years. This year I took a full time job and expect to have no income going forward. As of now I have earned about 5K and expect no more.

1) Should I make it inactive or just do nothing and pay NJ minimum tax of $375 ? (closing may not work since may need to get back to consulting in case something goes wrong with my fulltime job)

2) Do I need to pay myself anything - there is no revenue and the 5K will help cover the running cost and taxes and other expenses. I am sure I will end up in losses even without paying myself anything.

Thanks

“1) Should I make it inactive or just do nothing and pay NJ minimum tax of $375 ? (closing may not work since may need to get back to consulting in case something goes wrong with my fulltime job)”----> In the state of NJ, S Corps are required to pay a minimum CBT of $375 regardless of activity. When an S-corporation becomes inactive, it stops carrying on business activity. This means the company is no longer generating income and, for all intents and purposes, is out of business. However, even a business that is inactive, closed or bankrupt still needs to file a final tax return. just for reference, S corporation losses and income are included in the category of income “Net pro rata share of S corporation income.” This category is a net amount of the S corporation income and losses. A net loss from S corporations is not deductible against other categories of income because under the Gross Income Tax Act, losses from one category of income cannot be used to offset income in another category.
“2) Do I need to pay myself anything - there is no revenue and the 5K will help cover the running cost and taxes and other expenses. I am sure I will end up in losses even without paying myself anything.”--->If you decide to go with an S-corporation, the business absolutely must pay wages to owner-employees;S-Corporations must pay their employees a salary. Often, the business owners will work for the S-corporation, and the S-corp must pay owner-employees a reasonable salary. Paying zero wages to an owner-employee is unreasonable. the IRS has been auditing S-Corporations that pay owner-employees less than reasonable salaries. The Service is looking to recover underpaid payroll taxes. The penalty on unfunded payroll taxes is a stiff 100% penalty. So, in a way, paying wages and payroll taxes now will actually save both money and headaches. I guess the balance in your S crop AAA is zero* and possibly your basis in your S corp is also zero; assume that you have no loan basis in your S corp) as you have no taxable net income reported on your 1120s( or CBT 100S). When your S corporation stops transacting business, it will need to file an exit income tax return, and S-corporation shareholders will have income and losses to report from the corporation for the portion of the year that the business operated before closing. The business will also have to file a Notification of Dissolution of Surrender with the NJ Department of Taxation. I guess you need to contact Dept of taxation of NJ.

Thanks for your response.

I guess the answer to 1 is the issue in 2 - if I am inactive then I dont officially have to pay payroll at all. So inactive maybe the way to go maybe in the next few months as I am waiting for the last payments to clear.

I called IRS for 2 and they said if the company has no income then it doesnt have to pay payroll. The audit issue you mentioned below applies to corps' having revenue but didnt pay the owners.

I guess, I can always put the inactive business back in action at the right time. 375 I guess is the cost of keeping this option open.

How do I make the company inactive ? Do I have to file seperate notice to state and to federal ?

Thanks

“I guess the answer to 1 is the issue in 2 - if I am inactive then I dont officially have to pay payroll at all. So inactive maybe the way to go maybe in the next few months as I am waiting for the last payments to clear.”----> Correct;when an S-corporation becomes inactive, it stops carrying on business activity. This means the company is no longer generating income and, for all intents and purposes, is out of business. However, even a business that is inactive, closed or bankrupt still needs to file a final tax return.
“I called IRS for 2 and they said if the company has no income then it doesnt have to pay payroll.”--->Correct as long as the company as any income at all.But as said your company has an income $5,000.
“ The audit issue you mentioned below applies to corps' having revenue but didnt pay the owners.”--->Correct
“I guess, I can always put the inactive business back in action at the right time. 375 I guess is the cost of keeping this option open.”--->Correct; as far as I know, NJ S Corps are required to pay a minimum CBT of $375 regardless of activity.
“How do I make the company inactive ? Do I have to file seperate notice to state and to federal ?”---->You need to complete returns with no activity every year;then you n eed to dissolve your corporation as soon as possible.” In California, NY and NJ for example, being inactive does not mean that you are not required to file a Tax Return and avoid paying the minimum franchise taxes.As you are in NJ for example, you should first file a Final Year Corporation Tax Return for 2011 on the Federal Tax Return, and then file a dissolution with your State as soon as possible. Thereafter, for 2012 you should file an Inactive Tax Return only for NJ State. You would not have to file a Tax Return for the Federal in 2012.” You may be responsible for the prior years minimum filing taxes as well! In some state,i.e, PA, there is not a minimum tax issue.

Almost there - my income of 5K is actually the balance of payment for 2011 to be paid in 2012. I am waiting for this so as to put my company as inactive.

To make it inactive you mentioned ?”---->You need to complete returns"
Is this enough or do I need to file some 2556 or somtheing like that ?

I cant avoid filing state/fed for 2012 as I have a little income. Why do you say "file a dissolution with your State". Is this the same as inactive form ? Why nothing other than tax return with fed - wont they be expecting something also ?

Going forward I will wait until I resume contracting to use the company. Can I go active inactive say in a matter of two quarters ?

Thanks again ...

“To make it inactive you mentioned ?”---->You need to complete returns" Is this enough or do I need to file some 2556 or somtheing like that ?”----> Leaving it active simply means that you are incurring a minimum tax liability every year. All you do is file a "Certificate of Dissolution" with your state. You can probably find the the form on the New Jersey Dept of Rev. website. If the company is registered to collect sales tax, remit use tax or issue or receive sales tax exemption certificates; the entity's Certificate of Authority must be returned to the Division of Revenue along with the sales tax return and the REG-C-L or etc.
Incorporation Service - Incorporate Online - Business formation for LLC, Corporations
NJ Division of Taxation - Consequences of Not Dissolving a Corporation
“I cant avoid filing state/fed for 2012 as I have a little income. Why do you say "file a dissolution with your State". Is this the same as inactive form ? Why nothing other than tax return with fed - wont they be expecting something also ?”----> It may be easier and cheaper to dissolve the corporation than to continue paying fees and filing reports;as said previously, minimum franchise tax is levied whether the corporation does business or not - it's a minimum. QUOTE,” A Corporation that has ceased doing business in the State of New Jersey should be formally dissolved with the New Jersey State Treasurer through the Division of Revenue. In this manner, your S-Corp would avoid the Corporation Business tax, penalty, and interest. Every New Jersey Corporation must “submit New Jersey Corporation Business Tax Returns whether a corporation discontinued business” and it remains subject to at least the minimum tax on an annual until it legally dissolves through the New Jersey State Treasurer by the Division of Revenue. The failure to legally dissolve the corporation when the corporation has ceased doing business will result in the legal requirement to continue to file Corporation Business Tax returns with the necessary $500 minimum Corporation Business Tax (CBT). Hence, to avoid the recurring minimum CBT tax, a New Jersey Corporation that has discontinued its operations should legally dissolve itself. Also, it is important to note that the failure to file the Corporation Tax Returns due to reason of inactivity or discontinued operations, would not relieve the minumum $500 CBT tax liability and New Jersey State would impose penalties and interest on this amount as well. In conclusion, it is wise to formally withdraw or dissolve your inactive NJ corporation due to discontinued operations .
“Going forward I will wait until I resume contracting to use the company. Can I go active inactive say in a matter of two quarters?”---->I do not think so.