S-Corporation Business Forms & Methods
An S-corporation is a corporation that passes corporate income, taxes and deductions onto their shareholders. A shareholder in an S-corporation reports the income, taxes and deductions on his personal tax return, which allows the corporation to avoid double taxation. Only domestic corporations with fewer than 100 shareholders (none of which are other corporations, partnerships or non-resident aliens) and only one class of stock may become S-corporations.
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Becoming an S-Corporation
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In order for a C-corporation to become an S-corporation, its proprietor must fill out the Internal Revenue Service's Form 2553, Election By A Small Business Corporation. This form requires such information as the corporation's address and the date and state of incorporation, as well as the signatures, Social Security numbers and amount of stock owned for each shareholder.
Corporation's Forms
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An S-corporation must fill out several other specific forms around tax time. Form 1120S is used to report income, losses, deductions and credits for any tax year during which the election to be an S-corporation is in effect. Some S-corporations may be required to pay estimated taxes, which are covered by Form 1120W. S-corporations are also required to fill out forms for employment taxes. Social Security, Medicare and income tax withholding are taken care of by Form 941 (except for taxes related to agricultural employees, which require Form 943). The Employers' Annual Federal Unemployment Tax Return form is also known as Form 940.
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Shareholders' Forms
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Two specific tax forms must be filled out annually by shareholders in an S-corporation. Those shareholders responsible for income tax must fill out both Form 1040 and Schedule E for Supplemental Income and Loss. Those responsible for estimated tax must fill out a version of Form 1040 called, appropriately enough, Form 1040-ES.
Business Methods
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Proprietors of S-corporations are also shareholders, though they may also fill roles such as president and CEO. As such, they must observe fair business practices both for the sake of other shareholders and to avoid the risk of the government disallowing the S-corporation's liability structure. For example, transferring money wantonly between the corporation and the president's personal bank account could be questionable in the eyes of the government.
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References
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