Form 1120-S (S Corporation Income Tax Return)
The annual federal income tax return filed by S corporations, which pass income, deductions, and credits through to shareholders via Schedule K-1.
Detailed Explanation
S corporations are pass-through entities under Subchapter S of the Internal Revenue Code, electing the status by filing Form 2553. They file Form 1120-S annually and issue each shareholder a Schedule K-1 reporting their share of income, deductions, and credits. S-corp shareholders who actively work in the business must take reasonable W-2 compensation before drawing distributions, a frequent IRS audit focus area.
Key Points
- Informational return for S corporations; the entity generally pays no federal income tax.
- Each shareholder receives a Schedule K-1 reporting their pro-rata share of income, deductions, and credits.
- Due March 15 for calendar-year filers; six-month extension to September 15 via Form 7004.
- Active shareholder-employees must take a reasonable W-2 salary before distributions; the IRS audits low salaries.
- Shareholders track stock and debt basis on Form 7203, required when claiming losses or taking distributions.
Practical Example
An S-corp earns $250,000 of net income with one owner-employee. The owner takes a $90,000 reasonable W-2 salary (subject to payroll tax) and the remaining $160,000 flows through on a Schedule K-1 as a distribution not subject to self-employment tax. The corporation files Form 1120-S by March 15 and issues the K-1 the owner uses on their personal Form 1040.
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Learn about Business Tax PreparationRelated Terms
Form 2553 (S Corporation Election)
The IRS form used to elect S corporation tax status for an eligible domestic corporation or LLC, generally due within 75 days of the start of the tax year.
Schedule K-1
A tax document issued by partnerships, S corporations, estates, and trusts to report each owner's share of income, deductions, credits, and other tax items.
Pass-Through Entity
A business entity that does not pay federal income tax at the entity level; instead, profits and losses pass through to owners who report them on their individual returns.
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