What you need to know

As tax season approaches, we want to make sure you’re well-prepared for your tax obligations. If you own an S Corp, there are a few key things you need to know about the tax forms required. One of the most important points is that you can’t file your personal tax return (Form 1040) until your S Corp tax return (Form 1120-S) is done.

Let’s dive into the reasons why and explore the differences between these forms.

Form 1120-S: S Corporation Tax Return

What is Form 1120-S?

Form 1120-S is the tax form your S Corp uses to report its annual income, gains, losses, deductions, and credits. It tells the IRS how the corporation’s income is split among its shareholders.

S Corp as a Pass-Through Entity

An S Corp is a pass-through entity, meaning the corporation itself doesn’t pay income taxes. Instead, the profits or losses pass through to you, the individual shareholders, who then report your shares on your personal tax returns.

Shareholder Wages and Distributions

If you work in your S Corp, you probably get a salary, which is taxed like any regular job income. Additionally, you might receive distributions from the company’s profits. These distributions aren’t treated like salary, so they’re typically not subject to employment taxes.

Schedule K-1: Your Personal Piece of the Pie

Each shareholder gets a Schedule K-1 (Form 1120-S), which breaks down your specific share of the company’s income, deductions, and credits. You’ll need this completed form when you’re ready to file your personal tax return (Form 1040) to report everything accurately.

Form 1040: Your Personal Tax Return

What’s Form 1040?

Form 1040 is the standard federal income tax form used by individuals to report all the money you’ve made during the year. This includes your salary, income from side gigs, investments, and any other sources. If you’re part of an S Corp, you’ll also include what you’ve earned from there too.

About Self-Employment Tax

If you’re getting paid from your S Corp (like a salary), this income is treated just like any job income. You’ll pay regular taxes, like Social Security and Medicare, on it.

In Summary

Entities vs. Individuals

Remember, Form 1120-S is for the corporate entity (your S Corp), while Form 1040 is for your personal taxes. To file your personal taxes, you need to first complete your S Corp tax return.

Separate Filings

You must file your business and personal returns separately.

Tax Filing Deadlines

Keep an eye on the different filing deadlines. Form 1120-S comes first because your personal return needs the Schedule K-1. Typically, you’ll have about another month to file Form 1040 after completing Form 1120-S.