Category: Taxes Made Simple – Tax & Entity Structure

🚀 Quick Summary

• S-Corporations (S-corps) are pass-through entities that avoid double taxation.
• S-corps must file Form 1120S annually and issue Schedule K-1s to shareholders.
• Shareholder-employees must be paid a reasonable salary and run payroll.
• State rules and elections may vary. Consult a tax advisor for your location.

🏛️ What Is an S-Corporation?

An S-corporation is a special tax status granted to eligible corporations or LLCs by the IRS. It combines the liability protection of a C-corp with the tax simplicity of a pass-through entity — meaning business income is taxed only at the shareholder level, not at the corporate level.

✅ Requirements for S-Corp Status

• Be a domestic corporation or LLC
• No more than 100 shareholders
• Shareholders must be U.S. citizens, resident aliens, or qualifying trusts/estates
• Only one class of stock
• File IRS Form 2553 to elect S-corp status

🧾 Tax Filing Obligations

• Form 1120S: Annual tax return for the corporation (due March 15)
• Schedule K-1: Distributed to shareholders to report their share of income
• Form 7004: Extension request if needed (does not delay tax payments)

💵 Payroll & Compensation Compliance

If you are an owner who works in the business, the IRS requires that you pay yourself a "reasonable salary." This must be processed through W-2 payroll — and taxes such as Social Security and Medicare must be withheld and remitted.

Key payroll requirements:

• Set up a payroll system (e.g., Gusto, ADP, QuickBooks Payroll)
• Pay yourself on a consistent schedule (monthly/bi-weekly)
• File quarterly payroll forms (Form 941, 940, and state equivalents)
• Issue a W-2 annually

📤 Shareholder Distributions

After paying a reasonable salary and business expenses, any remaining profits can be distributed to shareholders. These distributions are generally not subject to payroll taxes but must be tracked accurately.

🧮 Bookkeeping & Recordkeeping

S-corps must maintain separate business books and bank accounts, and track all income, expenses, distributions, and payroll. Good accounting practices are key to maintaining compliance and preparing annual filings.

📅 Annual Compliance Checklist

• [ ] Run W-2 payroll for shareholder-employees
• [ ] File Form 1120S by March 15
• [ ] Issue Schedule K-1s to shareholders
• [ ] File and pay state business taxes (if applicable)
• [ ] Update annual meeting minutes and corporate records

📎 Resources

• IRS Form 1120S Instructions
• IRS Schedule K-1 Guide
• Internal Playbook: Officer Compensation & Payroll

Need help with your S-corp setup, payroll, or filings? Book a session with our team: https://booknow.gbooks.solutions/#/bizTaxReview