Form 1120 S Corporation Tax Return Guide

Interactive Guide to S Corporation Tax Benefits

An Interactive Guide to S Corp Tax Benefits

Explore the financial advantages of the S Corporation structure.

1. Pass-Through Taxation

The most fundamental benefit of an S Corp is avoiding "double taxation." Profits are taxed only once at the shareholder level, unlike C Corporations where profits are taxed at both the corporate and shareholder level.

C Corporation (Double Taxation)

🏢

Corporation Profit

$100,000

TAX 1
📄

Corporate Tax

(e.g., 21%)

💸

Dividends to Shareholder

$79,000

TAX 2
🧑

Personal Income Tax

(on dividends)

S Corporation (Pass-Through)

🏢

Corporation Profit

$100,000

📈

Income "Passes Through"

(No Corporate Tax)

🧑

Income on K-1 to Shareholder

$100,000

TAX
📄

Personal Income Tax

(on business profits)

2. Savings on Self-Employment Taxes

S Corp owners can be employees. By paying themselves a reasonable salary and taking the rest of the profits as distributions, they can significantly reduce self-employment (FICA) taxes, as distributions are not subject to these taxes.

Salary: 50% Distribution: 50%

Total FICA Tax (15.3% on Salary):

$9,180.00

Amount not subject to FICA:

$60,000.00

*This is a simplified illustration. Income tax is still due on all profits. Consult a tax professional.

3. Qualified Business Income (QBI) Deduction

Eligible S Corp shareholders can often deduct up to 20% of their Qualified Business Income on their personal tax return, significantly lowering their effective tax rate.

Potential QBI Deduction (20%):

$16,000.00

*The QBI deduction is subject to various limitations based on income, W-2 wages, and property. This is a simplified calculation.

4. Deductibility of Business Losses

If the S Corp has a loss, shareholders can generally deduct their share on their personal return to offset other income. However, this deduction is limited by the shareholder's "basis" (their investment in the company).

Scenario: Loss is LESS than Basis

Business Loss

-$20,000

➡️

Shareholder Basis

$50,000

Deductible Loss

-$20,000

The full loss can be deducted on your personal return, potentially reducing your overall tax.

5. Pass-Through of Credits & Other Deductions

S Corps don't use deductions and credits at the corporate level. Instead, they pass them through to shareholders on Schedule K-1 for use on their personal tax returns. Click each card to learn more.

🏭

Section 179 Deduction

Immediate expensing of business property.

Allows for immediately deducting the cost of qualifying assets rather than depreciating them over time.

Reported in **Box 11** of Schedule K-1.

❤️

Charitable Contributions

Deduct the company's donations.

The corporation's charitable giving is passed through for shareholders to deduct on their personal itemized deductions.

Reported in **Box 12** of Schedule K-1.

💡

Business Tax Credits

R&D, energy, work opportunity, etc.

A wide range of credits that directly reduce your tax liability are passed through to shareholders.

Reported in **Box 13** of Schedule K-1.

This guide is for informational purposes only.

Consult with a qualified tax professional for advice specific to your situation.

COCOMOCPA

Financial Controller / CPA

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