An S corporation files a special type of tax return called Form 1120S, U.S. Income Tax Return for an S Corporation. This form is used to report the corporation’s income, deductions, and other financial information to the Internal Revenue Service (IRS). The Form 1120S is similar to the Form 1040, which is used by individuals to file their income taxes. However, the Form 1120S has some additional sections that are specific to S corporations, such as a section for reporting the corporation’s shareholder distributions.
S Corporation Tax Return
An S corporation, also known as a pass-through entity, is a type of corporation that allows its owners to avoid double taxation. Instead, the profits and losses of the corporation are passed through to the individual shareholders and reported on their personal tax returns.
Form 1120-S is the tax return that S corporations use to report their income, deductions, credits, and losses to the IRS. This form is due on the 15th day of the third month following the end of the corporation’s tax year (typically March 15th for calendar-year corporations).
Schedule K-1 (Form 1120-S)
Along with Form 1120-S, S corporations must also file a Schedule K-1 (Form 1120-S) for each shareholder. Schedule K-1 provides information about the shareholder’s distributive share of the corporation’s income, deductions, credits, and losses.
Shareholders must report the information from Schedule K-1 on their individual tax returns. They can do this by using the following forms:
- Form 1040, Schedule B (if they have capital gains or losses)
- Form 1040, Schedule C (if they have self-employment income)
- Form 1040, Schedule SE (if they have self-employment tax)
Table of Tax Return Information
| Type of Tax Return | Form Number | Due Date | Who Files |
|---|---|---|---|
| S Corporation Tax Return | 1120-S | 15th day of the third month following the end of the corporation’s tax year | S corporations |
| Schedule K-1 (Form 1120-S) | 8910 | Same as Form 1120-S | S corporations |
Pass-Through Taxation of Income and Losses
S corporations, also known as pass-through entities, are not subject to corporate income tax. Instead, the income and losses of an S corp “pass through” to the individual shareholders, who report them on their personal tax returns.
Benefits of Pass-Through Taxation
- Avoid double taxation: S corp income is only taxed once, at the shareholder level, eliminating the double taxation faced by C corporations.
- Flexibility: Shareholders can choose how and when to distribute profits, allowing for tax planning and cash flow management.
Tax Filing Requirements
S corporations file Form 1120-S, U.S. Income Tax Return for an S Corporation, to report their income, expenses, and distributions to shareholders.
Shareholders of S corporations file Schedule SE (Form 1040), Self-Employment Tax, to report their share of the S corp’s self-employment income and pay the associated self-employment taxes.
Allocation of Income and Losses
The income and losses of an S corp are allocated to shareholders based on their percentage ownership of the company.
Shareholders report their share of the S corp’s:
- Ordinary income
- Capital gains
- Losses
| S Corporation | Shareholder A | Shareholder B |
|---|---|---|
| Net Income: $100,000 | Share: $50,000 | Share: $50,000 |
| Dividend Distribution: $40,000 | Distribution: $20,000 | Distribution: $20,000 |
| Taxable Income (Shareholder A): $70,000 | Taxable Income (Shareholder B): $70,000 |
Audit Considerations for S Corporations
S corporations are generally not subject to corporate income tax. Instead, the income and losses of the S corporation are passed through to the shareholders and reported on their individual tax returns. However, S corporations are still required to file an annual tax return, Form 1120-S, U.S. Income Tax Return for an S Corporation, to report the income and losses of the corporation and to provide information to the shareholders.
S corporations are more likely to be audited than other types of businesses. Some of the reasons for this include:
- S corporations are often used to avoid corporate income tax.
- S corporations are often used to shelter income from taxation.
- S corporations are often used to engage in tax-avoidance strategies.
If your S corporation is audited, the IRS will examine your tax return and supporting documents to verify that the information you have reported is accurate. The IRS may also examine your business practices to ensure that you are complying with all applicable laws and regulations.
To reduce the chances of your S corporation being audited, it is important to:
- File your tax return on time and accurately.
- Keep good records of your business income and expenses.
- Be aware of the tax laws and regulations that apply to your business.
If your S corporation is audited, it is important to cooperate with the IRS and provide them with all of the information they request. By cooperating with the IRS, you can help to resolve the audit quickly and minimize the potential for penalties.
If Your S Corporation Is Audited
If your S corporation is audited, the IRS will send you a letter notifying you of the audit. The letter will include the following information:
- The date and time of the audit
- The location of the audit
- The name of the IRS agent who will be conducting the audit
- A list of the documents that you will need to bring to the audit
On the day of the audit, you should arrive on time and bring all of the requested documents. You should also be prepared to answer questions about your business and your tax return.
The IRS agent will review your tax return and supporting documents and may ask you questions about your business practices. The agent may also request additional documents or information.
Once the IRS agent has completed their review, they will issue a report of their findings. The report may include:
- A determination of whether or not you owe additional taxes
- A list of any penalties that you may owe
- Instructions on how to pay any additional taxes or penalties
If you disagree with the findings of the audit report, you can file an appeal with the IRS. You should file your appeal within 30 days of receiving the audit report.
The IRS will review your appeal and may schedule a hearing to discuss your case. If the IRS does not agree with your appeal, you may be able to file a lawsuit in tax court.
If you are facing an IRS audit, it is important to seek professional help. A qualified tax professional can help you to prepare for the audit, represent you during the audit, and help you to resolve any disputes with the IRS.
Well there you have it, folks! I hope this article has shed some light on the tax return filing requirements for S corps. As always, please consult with a qualified tax professional for any specific questions. Thanks for reading, and be sure to check back for more informative articles on all things business and finance.