S corporations are not subject to corporate income taxes. Instead, the company’s individual shareholders report the income (or losses) on their personal tax returns.
Required Tax Documents for S Corp
Use Form 1120-S to report income, gains, losses, deductions, and credits. Calculate net profits by subtracting total operating expenses from the gross profit.
Earnings from an S Corp
Profits are allocated to shareholders based on ownership percentage. Shareholders can receive earnings as wages or distributions.
The IRS mandates S Corps to file the 1120S tax form. S corps pass all income to owners for reporting purposes. Business expenses can be deducted from S corp profits to determine net income.
S corps let owners avoid double taxation of a C corp. Profits flow through to tax returns, which is usually more efficient. Redistributions only incur income tax.
An S corporation does not have a separate tax rate; it uses personal income tax rates. Quarterly estimated payments may be required if income exceeds $500.