Hi,

My partner and I have an S corporation set up in Illinois. He is permanently moving to Iowa. We work as independent contractors on various projects--his mainly in Iowa. As an S corporation, we are employees of the corporation and pay ourselves wages every month. How do we handle paying the state taxes? Pay both Iowa and Illinois? Or pay Illinois and file an Iowa return at the end of the year? I'm worried about paying double taxes.

Thanks for your help.
Libby

As an S-Corp shareholder, you cannot pay yourself a salary every month. It's a flow-through entity, which means net income will combined with your other personal earnings when you file your tax return at the end of the year. There is no tax on the corporate level.

When you mention state taxes, I assume you are talking about state income taxes. You will have a K-1 form to allocate income for each of you, then each of you use it for your own tax return on your own state of residency.

The answer given to you above is INCORRECT. Person above needs to do more research.

Here is your answer:
Tax Law (Questions About Taxes): S Corp w/ no income in a give year (http://en.allexperts.com/q/Tax-Law-Questions-932/2008/2/S-Corp-w-income.htm)

Agreed. There was a mistake above.

NP. Were here to help each other out. :)