There’s a big advantage to filing taxes as an S Corporation — you can significantly reduce your self-employment tax by paying yourself a “reasonable” salary and taking other money out of the business as “drawings.” Of course, this does make your tax filing and paperwork more complicated but don’t worry, we’ve got you covered!
Here’s what you need to do to ensure you have everything in place to manage and file your self-employment and other taxes as an S Corp. All of the information here also applies to LLCs that elect to be treated as an S Corp for tax purposes by filing Form 2553 with the IRS. Read on to learn about how to file business taxes yourself — and how you can get expert help from Incfile.
Basic Concepts of Taxation for S Corporations
Before we get into the details of how to file taxes as an S Corp, we’ll break down the fundamental concepts:
S Corporations, like LLCs, are treated as “pass-through” entities. In plain English, this means the owners of the business report any profits earned by the S Corp on their yearly 1040 federal tax return.
Self-reporting tax filing services like TurboTax, H&R Block and others can help you with the 1040 aspect of your tax return, but typically do not provide capabilities to file other mandatory forms with the IRS or your state.
In almost all cases, you will want to work with a professional accountant or CPA to ensure you are filing all of your taxes with the correct forms, in the correct way and at the correct time. Incfile's Business Accounting service can do this for you — we even provide a free tax consultation.
The Types of Taxes You or Your S Corporation Will Need to Pay
The types of taxes you will need to file and pay as the owner of an S Corp are:
S Corporation self-employment tax: This is actually known as “payroll” tax when paid as part of an S Corp, as S Corp owners need to be employees and paid through a payroll system to get tax benefits. The two taxes are functionally identical, at a rate of 15.3 percent, and are paid to the IRS.
Federal income tax: This tax is charged in bands depending on how much you earn, and is paid to the IRS.
State income tax: Depending on the state you live in, you may also have to pay state income taxes, payable to your state’s Department of Revenue.
Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA): These are small taxes paid to the federal and state government when you run and submit payroll.
It’s also possible that you may need to pay sales or other taxes, but the ones listed above are the main types of tax you will file for.
Step-by-Step: How to File S Corp Taxes
You can choose to file S Corp self-employment and other taxes yourself, though there are quite a few steps. Here’s what you’ll need to do:
Get an Employer Identification Number (EIN) from the IRS and a state Tax Identification Number from your state’s Department of Revenue. Incfile can also obtain an EIN on your behalf.
Set up a payroll system that you will use to pay workers, yourself and any other owners as employees.
Complete and run payroll on a regular basis. You will need to pay yourself a “reasonable” salary — the IRS doesn’t define what a “reasonable” salary is, but it should be equal to what a similarly qualified and experienced person would receive as a standard salary in a similar role.
When you run and submit payroll, you will owe certain self-employment (payroll), federal, state, FUTA and SUTA taxes. Pay these taxes to the relevant authorities. Depending on the type of payroll you have, your payroll software can help you with filing self-employment taxes online.
File necessary payroll tax reports. Report this to the IRS using Form 940, 941 or 943 and to your state on the form they specify.
At the end of the year, complete and file W-2 forms for employees and file with the IRS. You may also need to complete and return equivalent forms to your state.
File and pay estimated taxes throughout the year. These taxes will be those you would pay on earnings you take out of the business as “distributions.” Distributions will not have been subject to federal or state taxes, so you will need to estimate and pay those. These taxes may alternatively be paid through your payroll as “withholding.”
At the end of the year, you will need to file several forms with the IRS and your state. These include:
Form 1120-S, U.S. Income Tax Return for an S Corporation, which you will file with the IRS
Form 1040, Individual Income Tax Return, which you will file with the IRS, together with any attached “schedules” that shows income from your S Corp or other sources
An S Corporation tax return filed with your state’s Department of Revenue
An individual income tax return filed with your state’s Department of Revenue
Depending on your estimated tax payments, additional taxes may be applicable once you have calculated your total income.
Talk to your accountant about the types of taxes you will need to pay, when they will be due and how and where they should be filed. This will let you stay on top of your taxes and can also provide you with guidance if you want to file S Corporation taxes yourself.
If you need a great value accounting service, we can help. Our business tax service lets you consult with a qualified accountant about your S Corp self-employment, federal, state and other taxes. They'll prepare your paperwork and file all your tax returns on your behalf. Filling your S Corp self-employment taxes can be complicated, but by using Incfile, you can take the confusion out of the process and rest easy knowing our experts have it handled.
Paul is a freelance writer, small business owner, and British expat exploring the U.S. When he’s not politely apologizing, he enjoys hats, hockey, Earl Grey Tea, mountains, and dogs.