S Corporation Tax Forms: Everything You Need to Know
When reviewing S corporation tax forms, it is important to fully understand the basics of an S corporation and how it works. 3 min read
2. Tax Advantages of S Corporations
3. Filing S Corporation Form 2553
4. Filing Form 1120S - S Corporation Tax Return
5. Individual Shareholder Information on a Schedule K-1
6. S Corporation Employment Tax Forms
S Corporation Basics
When reviewing S corporation tax forms, it is important to fully understand the basics of an S corporation and how it works. An S corporation is considered a hybrid entity of a partnership and corporation, providing some of the benefits of both.
An S corporation is a "pass-through" entity, which means that the profit from the business will be passed to the individual shareholders. This makes the shareholder responsible for paying the tax on the portion they earned, and they will have to list this amount on their tax returns.
Even though the corporation will not be responsible for paying corporate taxes, since the shareholders pay for it, they are still required to file informational income tax returns each year with the IRS. Along with this tax return, the corporation will also be expected to send other payroll forms relating to the wages of its employees.
- Personal assets are protected from lawsuits.
- You have the ability to offset part of your personal income with business losses throughout the year.
- You can benefit from a lower tax bracket since the income will be taxed at a personal income level.
Filing S Corporation Form 2553
To have your business recognized by the IRS as an S corporation, there are a number of requirements that the corporation must satisfy before it can receive that classification. All corporations begin as a C corporation by default until the designation is changed after its formation.
To elect S corporation status, you can file with the required forms with the IRS immediately after the corporation has been formed and you have received the consent from the current stockholders to elect S corporation status. To be eligible to file for S corporation status, your business must meet certain guidelines, including:
- The corporation must be a domestic corporation with no more than 100 U.S. shareholders.
- A shareholder can only be classified as such if they are an individual, an estate, or a tax-exempt organization.
Once you have determined eligibility and received consent from the stockholders, you will be able to file for S corporation status by filing IRS Form 2553. This form must be filed within two months and 15 days of the year that the S corporation status is intended to take effect.
Filing Form 1120S - S Corporation Tax Return
Typically corporations are required to follow C corporation tax rules which would involve a double taxation, first at the corporate level and second on the personal income of the shareholders. While many eligible businesses select the S corporation status to avoid double taxation, they are still required to file corporate annual tax returns.
The Form 1120S S corporate tax return is filed with the IRS for informational purposes and is used to provide the IRS with a company overview of the both their earnings and expenses. This annual tax return must be filed by the 15th of the third month that follows the end of the company's fiscal year.
Individual Shareholder Information on a Schedule K-1
A Schedule K-1 is used by shareholders of an S corporation to report each shareholder's portion of the business' taxable income, so they can use this information when filing their personal tax return. The corporation must provide a Schedule K-1 to each of their company shareholders. Shareholders will be required to file their personal return to pay for their portion of the business tax by April 15th following the tax year.
S Corporation Employment Tax Forms
An S corporation is required to report employment related income and tax filings to the IRS. Even if the employees are shareholders, an S corporation will be required to withhold payroll taxes and file reports quarterly and at the end of the year. Some of the employment forms an S corporation will be required to file throughout the year include:
- Quarterly payroll reports - Form 941
- Unemployment Tax Returns - Form 940
- W-2 forms reporting employee wages as well as the W-3 form that must accompany it
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