An Interactive Guide to S Corporation Taxes
S Corporations offer powerful tax benefits, but the rules can be complex. This guide translates the official Form 1120-S instructions into an easy-to-understand, interactive experience.
The Pass-Through Advantage
The single biggest benefit of an S Corp is avoiding "double taxation." Unlike a C Corp, the S Corp itself doesn't pay tax on profits. Instead, profits, losses, deductions, and credits are passed through to the shareholders to report on their personal returns. This interactive diagram shows how it works.
Corporation Earns Income
Files Form 1120-S
(An informational return)
Issues Schedule K-1s
(To each shareholder)
Shareholder Reports K-1
(On their personal Form 1040)
Key Shareholder Benefits Explorer
Qualified Business Income (QBI) Deduction
This is one of the most significant benefits. Eligible shareholders may be able to deduct up to 20% of their qualified business income passed through from the S Corp. This deduction is taken on your personal return.
Note: This is a simplified calculation. Actual deduction is subject to limitations based on W-2 wages, property basis, and your taxable income.
Understanding Your Schedule K-1
The Schedule K-1 is the most important form you'll receive from the S Corp. It details your specific share of income, deductions, and credits. Hover over the boxes below to see what they mean.
Schedule K-1 (Form 1120-S)
Shareholder's Share of Income, Deductions, Credits, etc.
Shareholder Basis & Distributions
Distributions (cash or property) you take from the S Corp are not always tax-free. Their tax treatment depends on your stock basis and the corporation's Accumulated Adjustments Account (AAA). Use this simplified calculator to see how it works.