Answers · S corporations
What Is an S Corporation?
An S corporation is an eligible corporation or entity with a valid S election whose tax items generally pass through to shareholders.
How it works
The rule, and what it turns on.
The entity files Form 1120-S and K-1s. Shareholders report allocated tax items whether or not matching cash is distributed; the entity still has payroll and other compliance obligations.
Example
A two-owner 50/50 S corporation with $100,000 ordinary income generally allocates $50,000 to each shareholder, subject to separately stated items.
Common mistakes
What we see go wrong, and what we do instead.
- Calling an LLC an S corp without valid election.
- Confusing K-1 income with distributions.
A better approach
- Confirm entity classification and election acceptance before tax planning.
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.
- How Does an S Corporation Work?
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