Overview of S Corporation Tax Requirements
If your business has an S-corp tax classification status, you must file form 1120S, the annual tax return for your business, to report deductions, gains, income, and losses.
Requirements for S Corporation Status
S corporations must be domestic corporations, have only allowable shareholders (individuals, certain trusts, and estates), and pay tax on certain built-in gains and passive income at the entity level.
Filing Taxes for S Corporation
Electing S corporation status requires filing annual tax return on Form 1120S instead of Form 1120. The corporation pays tax on certain income types like passive income and built-in gains.
IRS Form 2553 for S Corporation Election
Form 2553 is used to elect S corp status and notify the IRS. It allows LLCs and corporations to save on taxes by choosing S corporation tax treatment.
- File Form 2553 to elect S corp status and notify the IRS.
- Share profits and losses with shareholders using Form 1120S.
- Pay shareholder wages and distribute profits without double taxation.
Additional Tax Forms for S Corporations
Use Schedule K-2 (Form 1120-S) to report international tax-relevant items from the operation of an S corporation.
Advantages of S Corporations
- Liability protection for shareholders
- Avoidance of double taxation
- Lower payroll taxes
- Flexible profit distributions
Consider comparing S corporations to other business structures like LLCs based on factors such as owner liability, payroll taxes, and profit sharing requirements.