An S Corporation is a business entity that functions as a corporation but is not taxed as an individual entity. S Corporations are able to avoid double taxation because they are not required to pay corporate income taxes on their profits. Instead, much like a sole proprietorship or a partnership, each shareholder reports the profits or losses of the business on their personal income tax return. However, unlike a sole proprietorship or a partnership, an S Corporation has liability independent from the owners/ shareholders.
The specifics of s corporation tax:
- Although an S corporation does not pay income tax as an entity, it is required to file a corporate tax return using IRS Form 1120S.
- The shareholders of an S Corporation must pay themselves reasonable compensation for their work and must pay taxes on this income.
- Each shareholder is required to report their share of the profits or losses of the business on a Schedule K-1.
- Some expenses of the shareholders of an S Corporation can be written off as business expenses.
- The state tax requirements for S Corporations vary from state to state.
In addition to the specific tax requirements outlined above, an S Corporation must pay the standard employment taxes that are required of other business entities. These include withholding and reporting state and federal income tax, workers’ compensation tax, Social Security and Medicare tax and unemployment tax. The S Corporation is also responsible for paying sales taxes and excise taxes on its products and services wherever applicable.
If you are a business owner seeking business tax services or business solutions, the licensed professionals at Winter & Winter Insurance Services, Inc. can provide you with the expertise you are looking for. Call us today at (866) 254-2996 or fill out our secure online request form to receive a free, no obligation consultation.