How Are Taxes Calculated for an S Corp?

How S Corporations Are Taxed

• The owners of the S corp pay income taxes based on their distributive share of ownership, reported on their individual Form 1040.
• Income generated by an S corporation is allocated among its shareholders, who are responsible for reporting and paying the tax due on their share of the income.

S Corporation Taxation

• S corporations are not taxed at the business level, passing income directly to the owners.
• Owners’ salary pays employment taxes and income tax, while distributions only pay income tax at the shareholder level.

Calculating S Corp Taxes

• Annual tax for S corporations is 1.5% of the corporation’s net income or $800.
• Sometimes, an S corporation must make estimated tax payments.

---

• Reduce Owner’s Wages
• Cover Owner’s Health Insurance Premiums

Tax Benefits of S-Corp

• S-corporation shareholders do not have to pay self-employment tax on their share of the business’s profits.

Forms and Reporting

• Use Form 1120-S to report income, gains, losses, deductions, credits, etc., of a domestic corporation.
• Dividend distributions are reported on Form 1099-DIV, and on Schedule K.

General S Corp Information

• An S corporation is a special kind of corporation taxed on the individual shareholders’ tax forms.
• Profits flow through to owners’ tax returns creating a more tax-efficient structure.

Helpful Calculations

• Net Income = Total Revenues – Total Expenses

Taxes and Shareholders

• S corporations pass income directly to owners.
• Active shareholders receive wage income and profit distribution.

Additional Information

• LLCs or corporations choosing S Corp taxation in California must pay a 1.5% state franchise tax on net income.