S corporations are popular among small business owners for their liability protection and potential tax savings. As an S corporation owner, you can reduce self employment taxes and avoid double taxation, but that also means following a unique filing process.
This guide explains how to file taxes as an S corporation, from payroll and estimated payments to your annual corporate return.
1. Understand S corp taxation basics
An S corporation is a pass-through entity, meaning the business itself does not pay federal income taxes. Profits and losses are passed through to shareholders who report them on personal returns. This structure eliminates double taxation, which applies to many C corporations.
When you pay yourself a salary, you pay payroll taxes on those wages. Any additional profits can be taken as shareholder distributions, which are not subject to self employment tax but are taxed as personal income. This difference creates the main tax advantage for S corporations.
Throughout the year, S corporation owners must manage payroll, estimated tax payments, and required filings to stay compliant.
2. File payroll taxes
Once your business earns revenue, the IRS requires that you pay yourself a reasonable salary as an employee. Your wages are subject to:
Any state payroll or income taxes that apply
To calculate your paycheck, divide your annual salary by the number of pay periods, such as monthly or biweekly.
You will deposit payroll taxes on a monthly or semiweekly schedule, depending on your business size, and file Form 941 quarterly. This form reports withheld income and FICA taxes as well as your employer share of payroll taxes.
3. File estimated taxes if needed
If your business generates profits beyond your salary, you can take those earnings as corporate distributions.
Example: You earn $75,000 in wages and your business makes $100,000 in total profit. You may take the remaining $25,000 as a distribution.
Distributions are not subject to payroll taxes, but you must pay federal and possibly state income taxes on them. The applicable rate depends on your total taxable income.
You will typically pay estimated taxes quarterly using Form 1040-ES, with payments due on April 15, June 15, September 15, and January 15 of the following year.
Type of Income | Tax Type | Reporting Form | Due Date |
Salary | Payroll taxes | Form 941 | Quarterly |
Distributions | Estimated income taxes | Quarterly |
4. Gather supporting business documents
To prepare your S corporation return, you will need:
A profit and loss statement showing revenue and expenses
A balance sheet listing assets, liabilities, and equity
Payroll reports
Records of deductible expenses such as rent, insurance, and professional fees
You do not submit these documents with your return, but they help calculate taxable income and serve as records if audited. Maintaining accurate books throughout the year using accounting software simplifies this step.
5. Prepare annual forms
At year end, S corporations must file several forms that cover payroll, income, and shareholder information.
Form | Purpose | Due Date |
Reports annual FUTA taxes | January 31 | |
Form W-2 | Reports wages paid to each employee | January 31 |
Form W-3 | Summarizes all W-2s for the business | January 31 |
Form 1099-NEC | Reports payments over $600 to contractors | January 31 |
Corporate income tax return for S corporations | March 15 | |
Lists each shareholder’s share of income and deductions | March 15 | |
Schedule E | Reports distributions and business losses on individual returns | April 15 |
Your state may require additional payroll or corporate filings, so confirm local deadlines.
6. Submit your S corp tax return
Form 1120-S serves as the federal tax return for S corporations and most LLCs taxed as S corporations. It reports your income, deductions, and credits for the year.
Alongside it, you must issue Schedule K-1 to each shareholder showing their share of business income and deductions. These are used when shareholders prepare personal tax returns.
If you need more time, file Form 7004 by the original deadline to receive an automatic six month extension. Taxes owed must still be paid by March 15 to avoid penalties, even if the paperwork is delayed.
Filing Type | IRS Form | Typical Deadline |
S corporation federal return | Form 1120-S | March 15 |
Extension request | Form 7004 | March 15 |
Shareholder income reporting | Schedule K-1 | March 15 |
7. File your personal taxes as an S corp shareholder
Each shareholder uses the information from Form 1120-S and Schedule K-1 to report their share of the company’s income on their personal Form 1040.
You may also need to include Schedule E if you received distributions or the business posted a loss. Most shareholders file these forms by April 15 each year.
This process ensures that the S corporation’s profits are taxed once at the individual level rather than at both the corporate and personal levels.
8. Plan for future tax years
After your first year filing as an S corporation, set up habits that make tax time easier.
Record income and expenses monthly instead of waiting until the end of the year.
Schedule estimated tax payments in advance.
Reevaluate your reasonable salary each year as revenue changes.
Consult an accountant or bookkeeper to identify available tax deductions.
You can also use tools like Gusto to automate payroll runs, file forms, and maintain compliance with IRS deadlines.
FAQs
Do S corporations pay corporate income tax?
No. S corporations do not pay federal income tax directly. Profits flow through to shareholders, who pay individual income taxes on their portion.
When are S corporation taxes due?
Form 1120-S and Schedule K-1 are typically due March 15. Individual shareholders report their income on April 15.
Can an LLC file as an S corporation?
Yes. A single or multi member LLC can elect S corporation status by filing Form 2553 with the IRS.
What happens if I miss the filing deadline?
You can request a six month extension using Form 7004, but you must pay any expected taxes by March 15 to avoid late payment penalties.
Do I still pay self employment tax as an S corp owner?
Only on the salary portion of your income. Distributions are not subject to self employment tax.
