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Experts in ensuring your S-Corporation is compliant with accounting and tax rules. Provide ongoing guidance regarding accounting decisions that will be most beneficial for your bottom line. 

S Corporations

S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This is very similar to partnership taxation.

S corporation must meet the following requirements:

  • Be a domestic corporation
  • Have only allowable shareholders:
    • May be individuals, certain trusts, and estates and
    • May not be partnerships, corporations, or non-resident alien shareholders
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations)

In order to become an S corporation, the corporation must submit Form 2553 (Election by a Small Business Corporation) signed by all the shareholders.

Key Points for S Corporations

Corporations can choose to be taxed at the shareholder level. The corporation is then considered an S corporation. It still files its own corporate tax return. This taxable income, along with various deductions and tax credits, is divided among the shareholders. Each shareholder includes his or her portion of the corporate income, deductions, and credits as part of the shareholder’s personal tax return. There is no income tax applied at the S-corporate level. Instead, all the items of income are taxed using the personal income tax rates.

The most sensitive area of S corporations is the compensation that it pays to its officers for services rendered. Compensation is subject to SE taxes; distributions are not. You will find benefit in engaging a tax advisor to assist you in the right balance for your shareholder/officer’s compensation versus distributable share.

Taxation of S Corporations

Similar to a partnership, an S corporation is its only legal entity; however, it pays no tax though there are some exceptions. It does, however, file its own tax return (i.e., Form 1120-S or the US Income Tax Return for an S Corporation). The filing deadline for partnership returns is March 15th. Form 1120-S includes a profit and loss statement, balance sheet, and information on all its partners.

View Form 1120-S 

Each partner will be given a Schedule K-1 (i.e., Shareholder’s Share of Income, Deductions, Credits, etc.), which represents their share of the profit and loss from the S corporation. This schedule is used by tax preparers when preparing your annual income tax return. Your share of the profit and loss will either increase or decrease your taxable income, thus the amount of tax you pay personally.

View Schedule K-1 

The Schedule K-1 information is a report on various forms and schedules of Form 1040. The most prevalent of these forms is Schedule E (i.e., Supplemental Income and Loss). Please contact us for questions or assistance needed to file your income tax returns.

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