Filing Form 1120-S for S-Corporations
01.Informational Return for S-Corps
An S-Corp files Form 1120-S to report pass-through income. Like partnerships, S-Corps pay no federal tax directly and issue Schedule K-1s to shareholders.
02.Reasonable Compensation Requirement
S-Corp owners must pay themselves a 'reasonable salary' for their services, which is subject to payroll taxes. The remainder can be distributed as tax-free distributions.
03.IRS Audit Risks
Paying an artificially low salary to avoid FICA taxes is a major trigger for IRS audits. The salary must align with market rates for similar positions.