An S corporation is a pass-through entity—income and losses pass through the corporation to the owners’ personal tax returns. An S corporation shareholder who performs more than minor services for the corporation will be its employee for tax purposes, as well as a shareholder.

Can you be an S corp with no employees?

An S corporation is able to hire employees, but employees are not a requirement. S corporations get taxed the same as partnerships and sole proprietorships. All three of these entities enjoy pass-through taxation. All profits of an S corporation get taxed on shareholders’ annual individual returns.

Do you get Form W-2 if you are a shareholder?

Shareholders who participate in management will receive a Form W-2 because their compensation package must include a salary. Box one on Form W-2 should include any health insurance premiums the S corp paid on behalf of a shareholder. W-2 compensation, even for shareholder-employees, is a business deduction.

What does it mean to be a shareholder of S Corp?

This means they receive a paycheck, withholding tax is accounted for, employment taxes are taken care of, and they receive a W-2 form. A shareholder who works for the S corp should expect to receive a reasonable compensation for the work he or she performs.

What kind of tax return does A S corporation file?

Although S corporations don’t pay entity-level tax, they still file business tax returns, called information returns. S corporations use Form 1120-S to report income, losses, credits, and deductions. It loosely resembles the C corporation return, Form 1120, so make sure you download the correct one.

Do you put all compensation on a W-2?

Put all compensation on a W-2. Since it would be more efficient to put everything on a W-2, put all compensation on the W-2. Here at RCReports we have seen as many, if not more, taxpayers get caught up in an IRS Reasonable Compensation challenge that was initiated at the state level.