How is an S Corporation Taxed?
For purposes of federal taxation, an S Corporation is taxed differently than a C Corporation. Typically, the S Corporation files its annual return using the Form 1120S, as opposed to the 1120 for a C Corporation. The 1120S is an informational return; it simply informs the federal tax authorities the amount of net profit/loss made by the S Corporation, the shareholders amongst which the profit/loss will be distributed, and the proportion in which the profit/loss is distributed to the shareholders. There is no tax payment/refund associated with the 1120S tax return, as the S Corporation does not have the independent tax status that a C Corporation has. Instead, the profits/losses of the S Corporation are considered distributed to the shareholders in proportion to the ownership interest of the shareholder.