When filing taxes for S Corps, it’s important to use the correct S corp tax forms. Remember that S Corporations are pass-through entities as far as taxes are concerned. So, rather than paying taxes to the federal government on profits, an S Corp passes through that tax obligation to its shareholders. But the key thing to remember is that S Corporations still need to file tax returns, the details of which are outlined below. The tax forms that are required of S Corporations include:
- Form 1120S
- Form 2553
- Schedule B
- Schedule K
- Schedule K-1
- Employment Tax Forms
- State Tax Forms
Form 1120S – S Corporation Tax Return
Even though an S Corp is a pass-through tax entity, it must file certain tax forms, including Form 1120S, the S Corporation tax return. It’s important to note that a lot of the information on this form is submitted for the purposes of information, as opposed to a traditional tax return from a corporation. The vast majority of the information required on Form 1120S pertains to the S Corp’s income, tax payments (estimated and otherwise), and deductions. For details about this form, contact your CPA.
Form 2553 – S Corporation Election
Another main form that must be filed for any company registered as an S Corp is Form 2553. Remember, S Corps begin as C Corps, formed under the state’s law of incorporation. After filing the appropriate forms with the Secretary of State, all of the shareholders of the corporation must elect [1] and agree to electing an S Corp tax status. Assuming that the corporation meets the requirements for making an S Corporation election, Form 2553 will be filed to formalize the election. Incidentally, the requirements for becoming an S Corp are:
- No more than 100 shareholders
- Only one class of stock
- Shareholders cannot be partnerships, corporations or non-resident aliens
Form 2553 is Election be a Small Business Corporation. It requires each shareholder to give consent on the form. Note that you only have to file this form in the beginning. In subsequent years, it’s assumed that the corporation wishes to remain an S Corp unless noted otherwise.
Schedule B – Other Information
Schedule B is to be filled out and submitted along with the rest of the tax return. This form is used to supply other information to the federal government; information that doesn’t appear on other tax forms. The other information to be submitted on Schedule B includes:
- Information regarding ownership interest the corporation may have in any partnerships
- Information regarding stock the corporation may own in other corporations
- Whether or not the corporation’s total receipts for the relevant tax year totaled less than a certain amount
- Whether or not the corporation’s total assets at the end of the tax year totaled less than a certain amount. Note that if the total assets were less than a certain amount, the S Corp doesn’t need to file Schedules L, Balance Sheets per Books, or M-1, Reconciliation of Income (Loss) per Books With Income (Loss) per Return, with its 1120S. Consult with your CPA for details.
Schedule K-1— Individual Shareholder Information
Because shareholders in an S Corp may come and go during the year, Schedule K-1 [2] must be submitted each tax year. This schedule is a summary of shareholder information. The form consists of the shareholder’s share of income, credits and deductions from the corporation. The corporation is required to give each shareholder a set of Shareholder’s Instructions for Schedule K-1. Every Schedule K-1 is unique to a particular shareholder and provides details about that shareholder’s portion of the S Corporation’s income for the prior tax year. This can cover various types of income such as ordinary business income, rental real estate income, dividends and royalties. It’s necessary to attach copies of all issued Schedule K-1s to the S Corp’s tax return, even if there is only one shareholder. The shareholders will then use the details from their Schedule K-1 to file their individual federal tax returns.
Schedule K – Summary of Shareholder Information
Schedule K is a summary of the information submitted from Form Schedule K-1, so the totals on this form must match the numbers submitted on all the K-1 Schedules. The exact name for this form is Schedule K, Shareholders’ Pro Rata Share Items, and it must be submitted along with Form 1120S.
Employment Tax Forms
Employment taxes on employee wages must be withheld by your S Corporation if it has employees. Additionally, any shareholder in your S Corporation who provides services to the corporation must receive a salary. The same rule applies to corporate officers, regardless of their shareholder status. Shareholder-employee salaries are subjected to employment taxes similarly to other employees’ salaries. Consequently, employment taxes on both employee and shareholder-employee wages and salaries must be periodically withheld, reported, and paid by your S Corporation.
Money must be periodically transferred to the federal government using electronic funds transfer as part of the payroll tax process. Quarterly employer tax returns (Form 941) must also be filed by your corporation. At the end of the year, a Form W-2, Wage and Tax Statement, specific to each employee, must be issued by the corporation. Bear in mind that copies of the W-2s, along with Form W-3, Transmittal of Wage and Tax Statements, must be filed with the federal government each year by the last day of February. Consult your CPA for details.
State Tax Forms
State taxes on S Corporations may be due, depending on where the corporation is registered. Though federal taxes do not apply to S Corporation profits, certain states impose taxes on them. In some states, S Corporations are subject to a flat fee instead. Where state taxes or fees are mandated for S Corporations, separate state tax returns must be filed. Even in states where S Corporations are exempt from such taxes or fees, an informational return is often still required.
Beyond federal employment taxes, employment taxes are also collected by most states. Establishing a state withholding tax account for your corporation is necessary to pay these taxes. Reporting and paying the taxes will involve using the appropriate state forms. For further details on these state taxes, consult your state’s Department of Revenue or the equivalent state office, or consult with your CPA.
In addition to these required forms, shareholder-employees of S Corps are required to take reasonable compensation. For assistance calculating your reasonable compensation figure, you can rely on RCReports. RCReports offers accurate and defensible reasonable compensation reports. Contact us today to learn more.
Sources
[1] About Form 2553, Election by a small business corporation | Internal Revenue Service. (n.d.). https://www.irs.gov/forms-pubs/about-form-2553
“A corporation or other entity eligible to be treated as a corporation files this form to make an election under section 1362(a) to be an S Corporation.”
[2] About Schedule K-1 (Form 1120-S), Shareholder’s Share of Income, Deductions, Credits, etc. | Internal Revenue Service. (n.d.). https://www.irs.gov/forms-pubs/about-schedule-k-1-form-1120-s
