An S Corporation (S Corp) structure can offer significant tax advantages to small business owners. S Corps are pass-through entities, which means that the owners of the company are required to disclose their portion of the company’s profits and losses on their individual tax returns. To keep their status and avoid fines, S Corps must adhere to certain filing criteria. What a S Corp must file is covered in this article.
First and foremost, S Corps are required to submit a Form 1120S annual tax return to the IRS. This return details the company’s annual revenue, deductions, and credits. The S Corp passes along its income to the shareholders without paying taxes on it. A Schedule K-1 is given to each shareholder, detailing their portion of the company’s earnings and deductions. They utilize this data to disclose their portion of the income on their individual tax forms.
Second, S Corps are required to submit state tax returns in every state in which they conduct business. For instance, a S Corp with a Washington State base that sells goods in Oregon is required to submit tax reports in both jurisdictions. S Corps in Washington State are required to submit a Form 63-23 annual tax return by the 15th day of the fourth month following the end of the tax year. Penalties and interest fees may apply if this return is not filed.
Thirdly, Schedule C, which sole owners use to disclose company revenue and costs on their personal tax returns, is not required to be filed by S Corps. Instead, S Corps submit Form 1120S and provide shareholders with Schedule K-1s. The information on the Schedule K-1 is used by the shareholders to record their portion of the business’s income and deductions on their individual tax returns.
Finally, if S Corps anticipate owing at least $1,000 in tax for the year, they must submit quarterly anticipated tax payments to the IRS. On the fifteenth day of the fourth, sixth, ninth, and twelfth months of the tax year, the projected tax payments are due. Penalties and interest charges may apply if these payments are not made.
Finally, S Corps are required to file an annual tax return with the IRS, state tax returns in each state where they conduct business, and, if necessary, quarterly anticipated tax payments. S Corps can alternatively opt to give its shareholders Schedule K-1s and without filing Schedule C. S Corps are advised to deal with a certified tax expert or accountant to guarantee compliance with all filing requirements.