How Does an S Corporation Pay Income Tax?

Question: How Does an S Corporation Pay Income Tax?

An S corporation (S corp)is a special type of corporation which is formed when a corporation files an election for "sub-s" status. S corporation profits "pass through" to the owners, and are taxable at the owners' personal income tax rates.

Answer:

An s corporation pays taxes in the following process:

1. The corporation files its taxes on Form 1120S, showing income and deductible expenses and including Schedule K-1, which lists the items which are distributed among shareholders.
   
2. A Schedule K-1 is prepared for each shareholder showing that person's share of the profits/losses of the business for that year.
   
3. The Form 1120S and copies of all K-1s are filed with the IRS as an information return.
   
4. The shareholder reports s corporation income on Line 17 of his/her Form 1040.

The filing date and tax return due date for an S corporation is the same as for corporations (March 15 for a December 31 year end.)

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