Certain small businesses that operate as corporations or limited liability companies can elect to be treated as S corporations for federal income tax purposes. Many states, such as Georgia, recognize IRS designations and require the filing of an S-corporation state tax return by businesses that make the federal election. When your business files taxes as an S corporation in Georgia, revenue earned in Georgia must be separated from its other revenue.
Prepare IRS Form 1120S, U.S. Income Tax Return for an S Corporation. You can obtain a copy of this form on the IRS website (link in Resources). Completing the federal S corp tax return before you start on your Georgia state return is essential as the Georgia tax form will reference amounts on the 1120S.
Obtain Georgia Form 600S and its instructions. You can obtain a copy of this form and the accompanying instructions on the Georgia Dept. of Revenue website (see Resources).
Complete Schedules 5 and 6 of Form 600S. These schedules cover the adjustments you must make to amounts reported on the federal return. For example, the IRS allows S corporations to exclude municipal bond interest from taxable income, while Georgia only allows the exclusion for Georgia municipal bonds.
Apportion total income to Georgia. Form 600S uses the gross receipts factor (the ratio of the S corporation’s revenue from Georgia to its total revenue) to arrive at the corporation’s total income subject to state income tax. Revenue is attributed to Georgia if it’s earned by shipping goods to customers within the state or providing services to customers within the state.
Compute total income for Georgia purposes. You will need a copy of Form 1120S since the computation starts with the amount reported on the “Ordinary Business Income/(Loss)” line of your federal tax return.
Calculate the S corporation’s Georgia net income. The Net Income section will extract the data you reported in the other sections to calculate the net income amount that must be allocated among the shareholders or members for reporting on a Georgia state income tax return.
File your completed Form 600S state return. You can mail the form to the Georgia Dept. of Revenue Processing Center at P.O. Box 740391, Atlanta GA 30374-0391. The due date is the 15th day of the third month following the close of the S corporation’s tax year.
Tips & Warnings
Remember that the owners of the S corporation are actually responsible for paying tax on the company’s earnings (other than passive income and built-in gains). For owners who are Georgia residents, state income tax must be paid on all earnings, regardless of which states generate revenue for the corporation. Owners who nonresidents of Georgia must file a state tax return as well but only need to report the S corp income earned in Georgia, which is calculated as the total Georgia net income reported on Form 600S multiplied by the taxpayer’s percentage of ownership in the business.
When filing Form 600S with the Georgia Dept. of Revenue, you must include a copy of the S corporation’s federal Form 1120S and all supporting schedules.
References & Resources
- Internal Revenue Service: S Corporations
- Georgia Dept. of Revenue: 2011 S Corporation Income Tax Forms and General Instructions
- Georgia Dept. of Revenue: Taxpayer Services Division – Individual Frequently Asked Questions
- Internal Revenue Service: Form 1120S (U.S. Income Tax Return for an S Corporation)
- Internal Revenue Service: Instructions for Form 1120S
- Georgia Dept. of Revenue: Form 600S