Key Takeaways

  • An S corp tax return involves several essential IRS forms, including Form 2553, Form 1120S, and shareholder Schedule K-1s.
  • Filing accuracy is crucial, as errors or missed deadlines can lead to penalties or the loss of S corporation status.
  • Form 1120S is an informational return — income flows through to shareholders for personal reporting.
  • Common supporting forms include payroll filings (Forms 941, 940, W-2/W-3) and state-specific business tax filings.
  • Proper recordkeeping, payroll compliance, and coordination between the corporation and shareholders help avoid IRS scrutiny.
  • Professional tax planning and preparation can reduce audit risk and ensure ongoing S corp compliance.

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.

Tax Advantages of S Corporations

When it comes to taxes, S corporations have a number of advantages over other types of business entities. Some of the advantages of registering your company as an S corporation include:

  • 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.

Understanding Common S Corp Tax Filing Mistakes

Many S corporations make simple filing errors that can lead to IRS penalties or additional scrutiny. Common mistakes when completing an S corp tax return include:

  • Missing deadlines: Form 1120S is due on the 15th day of the third month after the tax year ends. For calendar-year corporations, that’s March 15. Late filings may result in per-shareholder, per-month penalties.
  • Improper shareholder allocations: Income and deductions must be distributed exactly according to ownership percentages. Inaccurate K-1 reporting can cause discrepancies between shareholder returns and the corporate return.
  • Failure to issue reasonable compensation: The IRS requires shareholder-employees to take a “reasonable salary” subject to employment taxes before distributions.
  • Incorrect expense deductions: Personal or nondeductible expenses improperly included in corporate deductions can trigger audits.
  • Neglecting state filings: Many states require separate S corporation returns or franchise tax filings in addition to the federal Form 1120S.

Maintaining clear documentation and consulting a professional tax preparer can help ensure accurate, timely compliance.

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.

Recordkeeping and Reporting Requirements for Shareholders

Each shareholder’s Schedule K-1 provides details about income, deductions, credits, and distributions passed through from the corporation. To avoid discrepancies with the IRS, shareholders should:

  • Keep detailed records of basis (their investment in the S corporation), since losses and deductions are limited to that amount.
  • Maintain copies of all K-1 forms and supporting documentation for at least three years after filing.
  • Report all income from the S corp on Form 1040, even if distributions are not received in cash.
  • Adjust basis annually to reflect profits, losses, and distributions.

Failing to track shareholder basis can lead to disallowed losses or inaccurate capital gain reporting on future stock sales.

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

Key IRS Forms and Deadlines for S Corps

In addition to Form 1120S, S corporations often must file a range of other IRS forms throughout the year to maintain compliance. Common examples include:

  • Form 941 (Quarterly Employment Tax Return): Reports federal income tax and FICA withholdings.
  • Form 940 (Annual Federal Unemployment Tax Return): Reports and pays FUTA taxes.
  • Form W-2 and W-3: Issued annually to employees and filed with the Social Security Administration.
  • Form 1040 (Schedule E): Used by shareholders to report their pass-through income from the S corporation.
  • Form 1099-NEC: For payments made to independent contractors.

Maintaining a calendar of IRS and state deadlines helps avoid late fees and interest.

Tax Planning and Professional Assistance for S Corporations

Effective tax planning can significantly reduce an S corporation’s overall tax burden. Strategies include optimizing shareholder compensation, managing deductible expenses, and timing distributions wisely. Year-round planning ensures that both the business and its shareholders minimize taxes while staying compliant.

Professional tax help is especially valuable when:

  • Managing multi-state filings or employee payroll taxes.
  • Preparing for IRS audits or reasonable compensation reviews.
  • Adjusting for ownership changes, elections, or new deductions under updated tax laws.

Tax professionals can also help ensure the corporation remains qualified for S status under Subchapter S of the Internal Revenue Code, as losing eligibility can result in default C corporation taxation.

If you need help filing or reviewing your S corp tax return, you can find and consult a qualified tax attorney through UpCounsel’s online marketplace.

Frequently Asked Questions

  1. What forms are required for an S corp tax return?
    An S corporation must file Form 1120S annually with the IRS, issue Schedule K-1s to shareholders, and submit payroll forms such as Forms 941, 940, W-2, and W-3.
  2. When is the S corp tax return due?
    For calendar-year S corporations, Form 1120S is due March 15. Extensions can be requested using Form 7004, which grants six additional months to file.
  3. What happens if an S corporation files late?
    Late filings may incur penalties of $235 per shareholder per month (up to 12 months). Consistent lateness can risk the corporation’s “S” election status.
  4. Do shareholders pay taxes on S corp earnings even without distributions?
    Yes. Shareholders must report their share of the company’s income on their personal return, regardless of whether they received a distribution.
  5. Can an S corp lose its tax status?
    Yes. Violating eligibility rules — such as exceeding 100 shareholders or issuing multiple stock classes — can terminate S corp status, resulting in C corporation taxation.

If you need help filing and reviewing S corporation tax forms, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.