How to File Taxes for Your S Corp

The S corporation business structure earns a lot of attention because of its benefits—namely, liability protection, an escape from double taxation, and self-employment tax savings. But when you run your business as an S corp, you’ll need to understand the tax-filing process that comes along with it. Here’s how to file taxes as an S corp and plan for future tax years. 

Understand S corp taxation basics

S corps are pass-through entities, meaning the business itself doesn’t pay taxes. Its profits and losses pass through to shareholders’ tax returns, so S corps avoid the double taxation typical of C corps. 

Business owners who elect S corp status benefit in other ways, too. When you pay yourself a salary, you’ll owe payroll taxes on that portion of your pay. But you won’t have to pay self-employment taxes on earnings beyond that salary. Instead, you can withdraw profits as corporate distributions and pay regular income tax on the amount, thereby lowering your tax bill.

Throughout the tax year, you may need to pay taxes and submit various tax forms to stay on top of compliance.

File payroll taxes

As soon as your business starts generating income, you’ll need to pay yourself “reasonable compensation.” That’s the regular salary mentioned above. You’ll owe federal income tax, Social Security and Medicare taxes (FICA), and unemployment taxes (FUTA) on these wages, plus state income tax if applicable. 

Once you’ve determined your salary and how often you’ll be paid, divide the annual figure by the number of pay periods (for example, if you pay yourself monthly, then divide by 12). Use that result to calculate your annual income and to calculate your payroll tax bill.

You’ll deposit your combined payroll taxes on your chosen schedule (monthly or semi-weekly) and then file the Form 941 once a quarter. This form reports how much you’ve withheld for income taxes and the employee portion of FICA taxes, along with the business’s portion of Social Security and Medicare tax. 

File estimated taxes if needed

If your business earns profits beyond your salary, you can take them as corporate distributions. For example, let’s say you pay yourself a salary of $75,000 for the year and your business earns $100,000. You can take $25,000 as your corporate distribution.

You won’t owe payroll taxes on distributions, but you will pay federal income tax on the amount. (You may also owe state and local income tax, depending on where you live.) The tax rate on distributions is determined by your individual income tax rate, which can range from 10% to 37%, depending on your total taxable income.

Federal income taxes are paid through quarterly estimated tax payments. You’ll need to deposit payments once a quarter—the deadlines are April 15, June 15, September 15, and January 15 of the following year. 

With each payment, you’ll also need to file Form 1040-ES, which reports estimated taxes on income not subject to withholding (i.e., your distributions).  

Gather other relevant documents

You’ll need to gather a few business documents to file with your tax return. The first is your profit and loss statement (aka income statement) for the tax year. This document details your business revenue and expenses. You’ll also need a balance sheet that lists your businesses’ assets, liabilities, and equity. 

Tracking this information throughout the year—ideally, with software like Gusto—can help streamline the process at tax time. 

If you’re planning to claim business tax deductions, you’ll need all financial records relating to each deduction. For example, keep any bank and credit card statements, utility bills, mileage records, and receipts from legal and professional fees. 

You won’t submit these documents with your tax return. But you or your accountant may need them when calculating taxes and to keep on file in case of a tax audit. 

Prepare annual forms

At the end of the year, you’ll need to prepare and provide the following forms:

• Form 940: Due annually by January 31. Details what you’ve paid in FUTA taxes for the year.
• Form W-2: Due annually by January 31. Reports each employee’s total income and taxes withheld from wages.
• Form W-3: Due annually by January 31. Summarizes the income and payroll withholdings for all employees. This is sent to the Social Security Administration.
• Form 1099-NEC: Due annually by January 31. If you paid any contractor or professional more than $600 during the tax year, they’ll need a copy of a 1099-NEC. The IRS receives a copy as well.
• Form 1120-S: Due annually, typically by March 15. This form reports the business’s income, gains, losses, deductions, and credits. It’s due by the 15th day of the third month after the end of the S corp’s tax year.
• Schedule K-1: Due annually, typically by March 15. Reports the business’s profits and losses for each shareholder. This form is also due by the 15th day of the third month after the end of the S corp’s tax year.
• Schedule E: Due annually by April 15. This is where you’ll report income distributions and business losses. It’s attached to Form 1040.

Your state may require you to file additional payroll tax forms, in addition to federal payroll tax forms. 

5. Submit your S corp tax return (Form 1120-S)

After preparing your annual tax forms, you’ll submit your Form 1120-S — usually by March 15 if you use the calendar year. This form acts as your company’s federal income tax return. You’ll need to fill it out if your business is an S corp or an LLC that’s taxed as an S-corp.

The form tells the IRS how much your company earned—your business income, deductions, and tax credits. 

You’ll also provide each shareholder with a Schedule K-1 for their personal tax returns.

If you can’t submit these forms to the IRS by the deadline, then file Form 7004 by your original deadline to request an automatic six-month extension. You’ll still need to pay any expected tax due by March 15, but you’ll have until Sept. 15 to submit the forms.

6. File personal taxes as an S Corp shareholder

Your business submits Form 1120-S and Schedule K-1 in March so you have the forms ready when filing your personal income tax return in April. Use the information on both forms to fill out your personal taxes. 

Plan for future tax years

If this is your first year filing taxes as an S corp, use your experience to plan for future tax years. For instance, you might decide to download and organize your relevant tax records once a month so they’re ready at tax time. 

If you’re unsure which tax deductions and tax avoidance strategies you can use, consider working with a CPA or tax professional to guide you through tax time.