A tax election only; this election enables the shareholder to treat the
earnings and profits as distributions, and have them pass thru
directly to their personal tax return. The catch here is that the
shareholder, if working for the company, and if there is a profit, must
pay herself wages, and it must meet standards of "reasonable
compensation". This can vary by geographical region as well as
occupation, but the basic rule is to pay yourself what you would have
to pay someone to do your job, as long as there is enough profit. If
you do not do this, the IRS can reclassify all of the earnings and
profit as wages, and you will be liable for all of the payroll taxes on
the total amount.
Federal Tax Forms for Subchapter S Corporations
(only a partial list and some may not apply)
Form 1120S: Income Tax Return for S Corporation
1120S K-1: Shareholder's Share of Income, Credit, Deductions
Form 4625 Depreciation
Employment Tax Forms
Form 1040: Individual Income Tax Return
Schedule E: Supplemental Income and Loss
Schedule SE: Self-Employment Tax
Form 1040-ES: Estimated Tax for Individuals
Other forms as needed for capital gains, sale of assets, alternative
minimum tax, etc.
Santos Associates, FEDERALLY AUTHORIZED TAX
PRACTITIONERS, can help you with your accounting, tax
and financial planning needs. Call today for an appointment &
consultation. We are not attorneys, we can refer competent
council upon request.
Subchapter S Corporation
ADVANTAGES of a S Corporation
- S Corporations avoid the
possibility of double taxation on
profits
- Shareholders are typically not
personally responsible for the
depts and liabilities of the
business
- S Corporations have unlimited
life extending beyond the
illness or death of owners
- Certain business expenses
may be tax-deductible
- Additional capital can be raised
by selling shares of the
corporation's stock
DISADVANTAGES of a S Corporation
- The IRS imposes restrictions
on shareholder guidelines:
shareholders must number
fewer than 75; must be
individuals, estates, or certain
qualified trusts; and cannot be
non-resident aliens
- S Corporations can have only
one class of stock
(disregarding voting rights)
- All shareholders must consent
in writing to the S Corp. election
- S Corporations are more
expensive to form than sole
proprietorships and
partnerships and facing
ongoing, state-imposed filing
requirements and fees
- A few states do require a state-
level filing in order for the
entity's S corporation status to
be recognized by the state
- S Corporations face ongoing
corporate formalities, such as
holding and properly
documenting annual meetings
of directors and shareholders