The business structure you choose has a significant effect on your taxes. As an S-Corp business owner, you have different tax responsibilities than a C-Corp business owner or sole proprietorship.
Understanding the nuances can save you time and money when S-Corp taxes are due, allowing you to keep the focus on your business.
Whether you recently started a new business or restructured as an S-Corp, this guide breaks down everything you need to know to file confidently and avoid common mistakes.
Table of Contents
Key takeawaysS-Corp tax requirementsHow do S-Corp taxes work?S-Corp tax advantagesHow to file S-Corp taxesWhen are S-Corp taxes due?S-Corp tax strategy to reduce your tax billKey takeaways
- If you structure your business as an S-Corp, income and losses are passed through to the shareholders who own the business.
- S-Corp owners can receive both a salary and dividends, potentially saving on self-employment taxes.
- All shareholders pay taxes based upon their individual income tax rate.
- Required forms for S-Corps may include: 1120-S, Schedule K-1, 941, and 940.
S-Corp tax requirements
To qualify for S-Corp status, you have to meet several requirements, which include::
- Being a domestic corporation (and all members must be US citizens or residents)
- Have a maximum of 100 shareholders
- Have only allowable shareholders (no partnerships, corporations, or non-resident alien shareholders)
- Have only one class of stock
- Be an eligible corporation (certain financial institutions, insurance companies, domestic international sales corporations are ineligible)
Typically, an S-Corp classification is reserved for smaller-scale businesses.
How do S-Corp taxes work?
With an S-Corp, individual tax items like business income and losses are passed through to the shareholders who own the business. As a result, any S-Corp income you report on your personal tax return is paid at your individual income tax rate.
If you structure your LLC as an S-Corp, your business will be taxed as a pass-through entity. Normally, you’d file your business taxes and pay the corporate tax rate as a business. With pass-through entities, tax items are passed through to the business owners.
S-Corp tax advantages
The pass-through structure of S-Corp taxes is one of the most advantageous reasons people choose this business structure. S-Corp business owners often pay less in taxes than other types of business owners.
Qualified Business Income (QBI deduction)
As an S-Corp, you may also be able to deduct up to 20% of qualified business income from your taxable income. This deduction is subject to income thresholds, limitations, and specific exclusions based on the type of business and total taxable income.
Taxed at individual income tax rate
Since the S-corp income is passed through to individual shareholders in an S-Corp, shareholders pay their share of taxes from this income based upon their individual income tax rate. Depending on your income tax bracket, you may save money when filing your business taxes as an S-Corp shareholder.
Pass-through of losses
If you recently started an S-Corp business and expect to lose money, you can pass those losses through to shareholders, who will then be able to deduct them when preparing their personal income tax return. Losses are passed through on a pro-rata basis and you can’t exceed your adjusted basis within the company.
Cash-method accounting
As an S-Corp, you typically don’t have to use the accrual method of accounting unless you have inventory. Instead, you can use the simpler cash method of accounting.
How to file S-Corp taxes
As an S-Corp business owner, you need to know about a handful of filing deadlines and tax forms. These include filing an S-corp income tax return, as well as payroll tax returns, and (in some cases) unemployment tax returns.
Business income taxes
Let’s start with the requirements for business taxes.
Form 1120-S
Form 1120-S is the business income tax return form for your S-Corp. This is where you report:
- Income
- Gains
- Losses
- Deductions
- Credits
You only need to file Form 1120-S for tax years in which you elected to operate as an S-Corp.
Form K-1
When you file Form 1120-S, a Schedule K-1 form is required for each owner. Schedule K-1 includes the business income, deductions, and credits allocated to each shareholder.
Form 941
If you pay wages to employees through your S-Corp, you also have to withhold federal income taxes, Social Security tax, and Medicare tax. As a result, you may have to file IRS Form 941 each quarter. This form lets you know how much money was withheld and sent to the IRS each quarter.
Form 940
You may also have to file a Federal Unemployment Tax Return if your S-Corp has employees. You can do this by completing and filing Form 940, but you’re only required to file Form 940 if:
- You pay wages of $1,500 or more in any calendar quarter or;
- Have at least one employee working at least part of a day in at least 20 separate weeks
Form 940 tells you how much unemployment tax you’re responsible for based on the wages you pay your employees.
Individual income taxes
Once all the S-Corp tax requirements have been fulfilled, it’s time for individual shareholders to file and pay their individual taxes. Each shareholder will receive a copy of Schedule K-1 that must be used to complete Form 1040—but the S-Corp should keep your Schedule K-1 for your records.
As you prepare to file, add these forms to your business tax checklist.
When are S-Corp taxes due?
Due dates for S-Corp taxes vary depending on the tax forms you’re filing. There are separate due dates for corporate income taxes, quarterly payroll taxes, and unemployment taxes.
If you follow the calendar tax year, Form 1120-S is due March 17 for the 2024 tax year because March 15th falls on a Saturday. Otherwise, your S-Corp income tax return is due on the 15th day of the third month after the end of the tax year, based on your business’s fiscal tax year.
If you can’t file by the deadline, you can file IRS Form 7004 to request an extension to file. This extension must be requested by March 17 for the 2024 tax year.
Form 941 is for quarterly payroll taxes, which means it’s due four times each tax year. Generally speaking, you can expect the Form 941 due dates to be January 31, April 30, July 31, and October 31.
Form 940 for unemployment taxes typically has to be filed by January 31 each year. However, there’s an exception to this deadline. If you pay your unemployment tax in full on time, you can file as late as February 10.
Note that if any of these dates fall on a federal holiday or weekend, it’s due the following business day. Failure to file S-Corp taxes by the IRS due dates can result in penalties.
S-Corp tax strategy to reduce your tax bill
Start by conducting a mid-year check-in to make sure you’re on track to meet your goals and file and pay your taxes on time. If you’re not on track, mid-year is a good time to readjust and prepare for tax season.
There are a variety of deductions and tax credits you may qualify for. Taking advantage of write-offs can help you reduce how much you owe.
For example, common deductions include business vehicle expenses, marketing and advertising costs, and certain professional and legal fees.
If you’re overwhelmed by the idea of doing your S-Corp taxes, a tax professional can help you prepare and file your taxes to maximize your savings. With TurboTax Live Business, get unlimited expert help while you do your taxes, or let a tax expert file completely for you, start to finish. Get direct access to small business tax experts who are up to date with the latest federal, state and local taxes. Small business owners get access to unlimited, year-round advice and answers at no extra cost, maximize credits and deductions, and a 100% Accurate, Expert Approved guarantee.