Updated for Tax Year 2014
Although perceived as a mix between a corporation and partnership, S corporations are required to file annual tax returns.
For tax purposes, an S corporation is somewhat of a hybrid entity that has characteristics of both a corporation and a partnership. Although it operates as a corporation, the business is not subject to double taxation since it is the shareholders, and not the corporation, who pay federal income tax on the business profits. Nonetheless, the S corporation must still file an annual corporate tax return.
Becoming an S corporation
S corporation taxation
Most corporations are subject to the C corporation tax rules, which include double taxation. This means that the business is responsible for paying income tax on its earnings, and then the shareholders are responsible for paying a second tax when they receive after-tax dividends from the corporation.
However, an S
corporation doesn’t pay any tax to the IRS. It is treated similarly to a partnership in that the income and deductions “pass-through” to each shareholder to be reported on their personal income tax returns in proportion to their respective shares of ownership.
Annual business tax returns
Shareholder tax returns
Each shareholder of your S corporation will receive a copy of their K-1 that the corporation prepares. As a shareholder, you must incorporate the amounts reported on your K-1 into your personal income tax return. Therefore, when your receive the K-1 with $100,000 in revenue and $50,000 in expenses, your personal income tax return will include an additional $50,000 of taxable income from the business that you are responsible for paying the tax on. Since you include these amounts on your own tax return, you must follow the appropriate deadlines for your Form 1040. which for most taxpayers is April 15 every year.