S Corporation complete guide and 2025 tax deadlines
S Corporation complete guide and 2025 tax deadlines
S Corporations (S-Corps) are an attractive business structure for tax purposes due to their unique ability to combine the benefits of pass-through taxation with limited liability protection. By electing S-Corp status, businesses can avoid the double taxation faced by C Corporations (C-Corps), as income, losses, deductions, and credits pass directly to shareholders and are reported on their individual tax returns. This structure offers a tax savings opportunity on self-employment taxes, as shareholders can receive a reasonable salary and take the remaining income as distributions. This is beneficial to the taxpayer as distributions are not subject to the 15.3% tax rate for self-employment taxes. These advantages make S-Corps a popular choice for small business owners seeking to optimize their tax situation while maintaining the legal protections of a corporation
To be eligible for S-Corp status, a business must meet the following requirements:
Domestic corporation – the business must be a U.S. based corporation
Allowable shareholders – the business must have only allowable shareholders:
a. May be individuals, certain trusts, and estates, and,
b. May not be partnerships, corporations or non-resident alien shareholders,
Shareholder limit - have no more than 100 shareholders,
Class of stock – have only one class of stock,
Ineligible – Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
To elect S-Corp status, the corporation must file IRS Form 2553, “Election by a Small Business Corporation,” signed by all shareholders. The form should be complete and filed no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect.
When the IRS accepts an S-Corp election, they will send you a CP261 Notice. This notice confirms that your election, submitted via Form 2553, has been approved. This notice should be received within 60 days of filing the election.
The IRS offers relief for late S-Corp elections. It is highly recommended that a tax advisor is obtained to execute an S-Corp election especially one that is past due.
For income tax purposes, an S-Corp allows income, losses, deductions, and credits to pass through directly to its shareholders, who report these amounts on their individual tax returns. This pass-through taxation helps avoid the double taxation that typically affects C-Corps. However, despite this benefit from an income tax perspective, S-Corps are still responsible for other business tax requirements. They must file an annual income tax return (Form 1120-S), issue Schedule K-1s to shareholders, and comply with payroll tax obligations, including filing Forms 941 and 940 for employment taxes. Additionally, state and local tax filings, sales taxes, and other regulatory requirements are handled at the S-Corp level rather than passed through.
Here are tax requirements and deadlines to know for S-Corp
Income tax and compliance
Estimated Quarterly Income Tax Payments:
Due Dates: April 15, June 16, September 15, and January 15 (of the following year). For example, the 2025 Q1 estimate is due April 15. 2025. Note that if a due date falls on a weekend, the due date is moved to the next business day.
Form: Use Form 1040-ES to make estimated tax payments if the S-Corp expects to owe $500 or more in taxes for the year. Note that because S-Corp are passthroughs and not subject to income tax, income taxes are paid at the individual owner level rather than at the S-Corp level.
Annual income Tax Return
Due Date: March 17, 2025 (or the 15th day of the third month after the end of the tax year).
Form: File Form 1120-S, "U.S. Income Tax Return for an S Corporation".
Annual Shareholder K-1s
Due Date: March 17, 2025.
Form: Provide each shareholder with a Schedule K-1 (Form 1120-S), which reports their share of the corporation's income, deductions, and credits.
Payroll taxes and compliance
Due Dates: Form 940 - annual and Form 941 quarterly
Form: Use Form 940, to report Federal unemployment tax (FUTA) tax liability on the first $7,000 of wages.
Form: Use Form 941, "Employer's Quarterly Federal Tax Return," to report Social Security, Medicare withholding for employee and shareholder wages.
Independent contractor filings (1099s)
Due date: January 31, 2025. Extension allowed.
Forms: File Form 1099 to independent contractors if paid to them $600 or more during the year for services rendered.
State and Local Taxes
Annual and quarterly requirements vary by state and locality. These include state income tax, sales & use taxes, state property tax, state payroll tax, as well as state annual and franchise report filings. Check with your tax advisor for specific deadlines and filing requirements that pertain to your company.
It’s very important to consult with a tax professional to ensure compliance with all federal, state, and local tax requirements that come with operating an S-Corp. Accurate, up to date compliance in this area can prevent business disruption and tax penalties.
If you have any more questions or need further assistance, feel free to contact us at 305-762-9587 or chad.hagger@hagger-tax.com
S corporations | Internal Revenue Service
Instructions for Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return
Instructions for Form 941 Employer's QUARTERLY Federal Tax Return
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