Answers · S corporations
How Are S Corporation Profits Taxed?
S corporation income generally passes through to shareholders, although special entity-level taxes and employment taxes can apply.
How it works
The rule, and what it turns on.
Shareholders can owe tax on retained earnings because allocation, not cash distribution, generally drives pass-through income.
Example
$100,000 of retained taxable profit can still be allocated to the shareholder and taxed on Form 1040.
Common mistakes
What we see go wrong, and what we do instead.
- Assuming retained S corp profit is tax-deferred.
A better approach
- Plan tax distributions separately from taxable-income allocations.
Authority
Where this comes from, so you can check it.
IRC §§1361-1379; Form 1120-S and instructions.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Also asked
The same question, the other ways people put it.
- Does an S Corporation Pay Federal Income Tax?
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