To file S corp taxes for the 2025 calendar year, prepare Form 1120-S with a full year-end balance sheet and profit and loss statement, issue a Schedule K-1 to every shareholder, and submit the return electronically by March 16, 2026. The corporation itself generally owes no federal income tax; profits and losses pass through to shareholders, who report their share on their personal Form 1040 at individual rates that run from 10 to 37 percent.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The March 15 deadline shifts one day because it falls on a Sunday in 2026.
What to Gather Before You Start
Pull the corporation’s Employer Identification Number, the nine-digit number the IRS issued when the business registered.2Internal Revenue Service. Employer Identification Number Confirm the effective date of the S election from your Form 2553 filing, and note the six-digit NAICS code that describes your primary business activity; it goes on the front page of the return.3United States Census Bureau. Economic Census: NAICS Codes and Understanding Industry Classification Systems
The heavier lift is financial. You need a finalized year-end balance sheet as of December 31 showing assets, liabilities, and equity, plus a complete profit and loss statement for the full year. Those two documents feed nearly every line of the return.
Gather W-2s for every shareholder who performs services for the corporation. The IRS requires S corps to pay working shareholders a reasonable salary before distributing profits, and courts have upheld that rule against shareholders who tried to take everything as distributions to avoid payroll taxes.4Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers Getting that salary-versus-distribution split wrong is one of the most common S corp audit triggers.
If the corporation paid health insurance premiums for any shareholder who owns more than 2 percent of the stock, those premiums must appear in that shareholder’s W-2 Box 1 wages, though not in Boxes 3 and 5 for Social Security and Medicare.5Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues The shareholder then claims the self-employed health insurance deduction on their personal return.
Finally, list every shareholder’s name, address, Social Security number, and exact ownership percentage. Those percentages drive how income, losses, and credits split across the K-1s.
Working Through Form 1120-S
Form 1120-S is available as a fillable PDF on irs.gov.6Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation The header captures basic corporate information and your accounting method. Most small S corps use cash basis, which records income when received and expenses when paid. Accrual basis, which records transactions when earned or incurred, is generally required only for businesses that carry inventory or exceed certain revenue thresholds.
Income Lines 1 Through 6
Line 1 reports gross receipts or sales. Line 2 subtracts cost of goods sold when applicable, producing gross profit on line 3. Lines 4 and 5 pick up net gains from selling business property and any other income, such as interest earned on operating accounts. Line 6 sums everything into total income before deductions.7Internal Revenue Service. Form 1120-S, U.S. Income Tax Return for an S Corporation
Deductions Lines 7 Through 22
Line 7 is officer compensation, which ties back to the W-2s you prepared for shareholder-employees. Line 8 covers wages paid to other employees. The remaining lines cover rent, repairs, bad debts, taxes and licenses, interest, depreciation, and other deductible costs. Line 21 totals the deductions, and line 22 subtracts them from total income to produce ordinary business income or loss.7Internal Revenue Service. Form 1120-S, U.S. Income Tax Return for an S Corporation
Tax and Payments
Most S corps show zeros here because the entity does not owe federal income tax. The main exception is the built-in gains tax, which applies when a corporation that converted from C corp to S corp sells appreciated assets within five years of the conversion.8Office of the Law Revision Counsel. 26 U.S. Code 1374 – Tax Imposed on Certain Built-in Gains A corporation that has always been an S corp skips these lines.
Preparing a Schedule K-1 for Each Shareholder
After finishing the main return, prepare a Schedule K-1 for each shareholder that breaks out their proportional share of income, losses, deductions, and credits by ownership percentage.9Internal Revenue Service. Shareholder’s Instructions for Schedule K-1 (Form 1120-S) Box 1 reports ordinary business income or loss. Later boxes cover rental income, interest, dividends, royalties, capital gains, and separately stated items that get special treatment on the shareholder’s personal return.
The K-1 also reports distributions of cash or property the shareholder received during the year. Distributions and income are different things on this form. A shareholder owes tax on their share of income whether or not the corporation actually distributed cash to them, and this “phantom income” problem trips up new S corp owners regularly.
The Filing Deadline and How to Get More Time
An S corporation return is due on the 15th day of the third month after the tax year ends. For calendar-year filers, that is usually March 15. In 2026 the deadline moves to Monday, March 16, because March 15 falls on a Sunday.
If you need more time, file Form 7004 by the original due date to get an automatic six-month extension, pushing the deadline to September 15, 2026.10Internal Revenue Service. About Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns The form is short: identifying information, the return code for an S corporation return, and submission electronically or by mail.11Internal Revenue Service. Instructions for Form 7004 No explanation is needed. An extension of time to file is not an extension of time to pay any entity-level tax that might be owed.
Filing on time matters for the shareholders too. They cannot finish their personal returns without their K-1 data, and their personal deadline is April 15. A slow corporate filing forces every shareholder to extend as well.
How to Submit the Return
Most S corporations must e-file. Any business that files 10 or more returns of any type during the year, counting income tax returns, employment tax returns, and information returns like W-2s and 1099s, is required to file electronically. Even a single-owner S corp with one employee usually crosses that threshold once quarterly payroll returns and year-end forms are counted.
Electronic filing goes through an IRS-authorized e-file provider, and your software confirms acceptance immediately. If you qualify to file on paper, the address depends on your location and total assets. Corporations in western and southern states generally mail to the IRS center in Ogden, Utah, and those in the Northeast and Midwest mail to Kansas City, Missouri, unless total assets are $10 million or more, which routes to Ogden regardless.12Internal Revenue Service. Where to File Your Taxes for Form 1120-S Certified mail with a return receipt creates proof of timely filing.
The Penalty for Filing Late
The penalty for a late or incomplete Form 1120-S is $255 per shareholder per month or partial month, for up to 12 months. It adds up quickly. A four-owner S corp that files three months late owes $3,060 in penalties alone. The $255 rate applies to any return with a due date after December 31, 2025.13Internal Revenue Service. Failure to File Penalty
The IRS can abate the penalty if the corporation shows reasonable cause. A first-time abatement request often works for S corps with clean compliance histories, but it isn’t something to rely on as a plan.
Payroll Returns That Go Alongside 1120-S
Form 1120-S is one piece of the federal picture. An S corp with employees, including shareholder-employees drawing a salary, files quarterly payroll returns on Form 941. Those are due April 30, July 31, October 31, and January 31 for the prior quarter.14Internal Revenue Service. Employment Tax Due Dates Between filings, you deposit withheld income taxes and both shares of Social Security and Medicare on either a monthly or semi-weekly schedule, depending on prior-period liability.
The corporation also files Form 940 each year for federal unemployment tax. For 2025 the deadline is February 2, 2026, and FUTA applies to the first $7,000 of wages paid to each employee.15Internal Revenue Service. Instructions for Form 940 (2025) W-2s and the W-3 transmittal are due January 31 of the following year. Missing any of these triggers separate penalties on top of the 1120-S late-filing penalty.
What Shareholders Do With the K-1
Each shareholder reports their K-1 on personal Form 1040. Ordinary business income or loss from Box 1 goes on Schedule E, Part II.9Internal Revenue Service. Shareholder’s Instructions for Schedule K-1 (Form 1120-S) Other items, such as capital gains, charitable contributions, and credits, each flow to their own lines on the personal return.
Personal K-1 figures must match what the corporation reported. Any mismatch generates an automated notice. If a K-1 has an error, ask the corporation to issue a corrected one before you file rather than reporting different numbers and hoping the discrepancy is not caught. A shareholder who fails to report K-1 income faces an accuracy-related penalty of 20 percent of the underpayment.16Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments Deliberate omissions can escalate to fraud penalties or criminal charges.
Estimated Payments
Because no income tax is withheld from pass-through income, shareholders usually make quarterly estimated payments to avoid underpayment penalties. The 2026 deadlines are April 15, June 15, and September 15 of 2026, and January 15, 2027.17Internal Revenue Service. 2026 Form 1040-ES – Estimated Tax for Individuals You can skip the January payment if you file your 2026 personal return and pay the balance in full by February 1, 2027.
The safe harbor most shareholders rely on is paying at least 100 percent of last year’s total tax liability across four equal installments, or 110 percent if adjusted gross income exceeded $150,000. Shareholders who also draw a salary sometimes bump up their wage withholding instead, which accomplishes the same thing with less paperwork.
The Qualified Business Income Deduction
Shareholders may qualify for a deduction of up to 20 percent of their qualified business income under Section 199A.18U.S. Government Publishing Office. 26 CFR 1.199A-1 – Operational Rules The deduction is claimed on the personal return, not on Form 1120-S, and can substantially reduce the effective tax rate on pass-through income. The calculation is straightforward for shareholders with taxable income below $201,750 for single filers and $403,500 for married filing jointly in 2026. Above those thresholds, limits based on W-2 wages paid by the business and the value of qualified property start to phase in. One practical consequence: setting shareholder-employee compensation too low can shrink the QBI deduction for higher-income owners, because the W-2 wage limitation kicks in. The reasonable compensation question cuts both ways.
Tracking Shareholder Basis
Every shareholder has a basis in their stock, starting with whatever they paid or contributed for their shares. Each year, basis increases by the shareholder’s share of income and decreases for distributions, losses, and non-deductible expenses. Adjustments happen on the last day of the corporation’s tax year.19Internal Revenue Service. S Corporation Stock and Debt Basis
Basis matters for two reasons. You cannot deduct losses beyond your stock and debt basis; a $50,000 loss on a K-1 against $30,000 of basis lets you deduct only $30,000 this year, with the remaining $20,000 carried forward until basis grows enough to absorb it. And distributions that exceed basis are taxed as capital gains rather than treated as tax-free returns of investment.
A shareholder who claims a loss, receives a non-dividend distribution, disposes of stock, or gets a loan repayment from the S corporation files Form 7203 with their personal return to document the basis math.20Internal Revenue Service. Instructions for Form 7203 Even in years when Form 7203 is not required, keep a running basis schedule. Reconstructing basis years later, when the IRS asks, is expensive and often impossible if records are gone.
State Filings Are Separate
Filing federal Form 1120-S does not satisfy state obligations. Most states require a separate S corporation income or franchise tax return and impose some form of entity-level tax, minimum tax, or annual report fee, typically running from under $50 to $800 a year depending on the state. Most states recognize the federal S election automatically, but New York and New Jersey each require their own state-level election, and treating the corporation as an S corp for state purposes without that election means the state treats it as a C corp. Georgia and Mississippi also impose consent requirements for nonresident shareholders. Check your state’s filing rules alongside the federal return so nothing slips.