S corporation tax filing enables corporations and LLCs to enjoy the pass-through tax benefits of a sole proprietorship or partnership. Instead of paying taxes twice through personal income taxes and corporate taxes, only the shareholders pay taxes on the company's profit. Only certain businesses qualify for this special tax election from the IRS. If allowed, S corporations must file annual tax returns by the 15th of the third month following the end of a tax year.

Frequently Asked Questions About S Corporation Tax Filing

If S corporations do not pay taxes, then what do they file?

S corporations generally do not pay taxes unless there are certain circumstances met during the year. However, they still have to file a tax return with the IRS. That is how the IRS can keep track of corporations and understand the filings for the individual shareholders. That filing helps the IRS confirm that the shareholders included the right amount in their tax filings.

An S corporation also has to file a tax return to ensure compliance with various tax programs. This includes taxes paid for wages and other taxable actions.

My corporation won't be able to file by the March 15 deadline. What can I do?

If for some reason your corporation is unable to meet the March 15 deadline, then you can file the Form 7004. This form essentially asks the IRS for a six month extension. The IRS will establish a new filing deadline for the corporation and its shareholders so that there is time to complete the filing. However, it is not a good idea to invoke this option multiple years in a row.

Do S corporations pay wage-related taxes?

Yes, S corporations still pay wage-related taxes like other companies. They withhold federal income tax, Social Security, and Medicare taxes, as well as file the 941 form with the IRS.

What happens when a corporation misses its filing deadlines?

If an S corporation misses its filing deadlines for the original filing and the extended date, there are significant penalties that the company will pay. These include the following:

  • $195 per month multiplied by the number of shareholders.
  • 5 percent per month on the balance of any unpaid tax balance (up to 25 percent of the balance).

Are unpaid income taxes held against an S corporation?

No, S corporations cannot be held responsible for unpaid income taxes since the corporation is not responsible for paying income tax at all. It is the responsibility of the shareholders that did not pay their taxes to resolve the issue.

How do shareholders know what to include on their taxes?

Each shareholder should receive the Schedule K-1 from the company, which shows what each shareholder's responsibility and liability is. Shareholders then use that information to file their taxes appropriately. It is important that the corporation files before everyone else though, since that paperwork cannot be processed unless the corporation has already filed.

What is the best way to keep up with the S corporation tax laws?

The best way to keep up with the appropriate filings is to hire a Certified Public Accountant (CPA) that specializes in corporate taxes for S corporations. A CPA can help you make sure that everything is filed correctly and that the appropriate documents are sent to the shareholders.

Steps to S Corporation Tax Filing

1. For companies that meet the IRS's three requirements for becoming a S corporation, filing a Form 2553 is the first step to being taxed as a S corp.

2. S corporations file annual tax returns to the IRS using Form 1120S.

  • Because shareholders pay taxes on their individual tax return, the Form 1120S is informational. The company won't pay federal taxes when it files this form.

3. S corporations prepare a K-1 for each shareholder.

4. Shareholders incorporate the data provided in the annual K-1 into their individual tax returns.

  • For most individual taxpayers, the deadline is April 15th. Electing to be taxed as a S corporation does not change that.

5. S corporations with employees need to report payroll taxes to the federal government each quarter on IRS Form 941 for withheld taxes and wages, and annually on IRS Form 940 for unemployment taxes.

6. Some states require S corporations to submit an annual tax return, in addition to the federal tax return.

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