S Corporation Taxation

S Corporation Taxation

S corporation taxation is somewhat complex.  Since S corporations are pass through entities, there is no income tax at the corporate level.  Instead, they file an informational federal income tax return on IRS Form 1120S.  The gains and losses pass through to the individual shareholders’ returns.  On the other hand, C corporations pay taxes as a separate legal entity.  In addition, the shareholders pay taxes on any dividends received. Thus, C corporations suffer from “double taxation.”

S Corporation Form 1120S Instructions

IRS Form 1120S (2016) Instructions

Corporate Allocations of Income and Loss

An S corporation is permitted only one class of stock. However, it may have both voting and nonvoting common stock.  In addition, an S corporation must treat each share of stock the same with respect to allocations of income, loss and distributions.  Therefore, an S corporation cannot provide a preferential allocation of income, loss or distribution to any shareholder.

Due Date for S Corporation Tax Return

An S corporation must usually take a calendar year-end date unless the corporation can establish a reasonable business purpose for a different year-end date.    For 2016 tax year and subsequent years, S corporation and LLC tax returns are due and taxes are payable on the 15th day of the third month after the end of the company’s fiscal year. Therefore, an S corporation or LLC with a fiscal year-end date of December 31 must file its tax return and pay taxes by March 15 of the following year.

Business Records for S Corporation Tax Returns  

What business and financial records do I need to provide to my CPA?

  1. Financial statements (Income Statement & Balance Sheet);
  2. Capital accounts – complete transaction history and summary statement of each shareholder’s capital account; and
  3. Shareholder information – shareholder name, address, and social security number.

Contact Chicago CPA and business lawyer Brian J. Thompson at Brian@BrianThompsonLaw.com for S corporation tax return preparation.