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Types of Taxes Paid by S Corporations

Filing Taxes for S Corporations

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Taxes Paid by S Corporations

An S corporation (S Corp) is special kind of corporation which operates like a corporation but is taxed on the individual shareholders' tax forms. Thus, an s-corporation is considered a pass-through taxing mechanism, and the shareholders are taxed for federal income tax purposes, but not the corporation itself. In all other ways, an s-corporation operates the same way as corporations.

Here are the taxes paid by an s-corporation:

Federal Income Taxes
An s corporation does not pay income taxes; the taxes owed by the s corporation are passed through to the shareholders based on their distributive share of ownership, and are reported on their individual Form 1040 for federal income taxes. For example, if the profits are $100,000 and there are four shareholders, each with a 1/4 share, each shareholder would pay taxes on $25,000 in profits.

  • First, the corporation files a corporate tax return on Form 1120S.
  • Then each shareholder's share of the profit or loss of the corporation is recorded on a Schedule K-1.
  • The K-1 information for each shareholder is reported on Line 17 of the shareholder's Form 1040.
Most states use the federal information to determine total income for state tax determination.

Self-employment Taxes
The owners of a corporation are shareholders and they receive dividends as a return on their investment. If any of the owners also are employees, they are not considered to be self-employed. The owner/employees must have federal and state income taxes withheld from their pay and have FICA/Medicare deducted from their pay, in the same manner as other employees.

Employment Taxes
A corporation must pay employment taxes, including withholding and reporting federal and state income taxes, paying and reporting FICA (Social Security and Medicare) taxes, worker's compensation taxes, and unemployment taxes.

Property Taxes
If the corporation owns a building or other real property, property taxes are required to be paid on this property.

State Sales, Excise, and Franchise Taxes
Corporations are required to pay state sales taxes and excise taxes in the same manner as other business types. Check with your state department of revenue for more information on sales and excise taxes.

Franchise Taxes
Some states levy franchise taxes on corporations each year. Check with your state department of revenue to see if your state requires these taxes.

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