If you’re a small business owner looking for ways to reduce self-employment taxes and optimize your business structure, forming an S Corporation (S Corp) can be a smart move. But before you jump into filing your first S Corp tax return, there are important steps and compliance requirements to understand.
At Midwest Professional Tax Services Inc, we’ve helped countless entrepreneurs and small business owners across the Midwest set up and manage their S Corporations correctly — saving them money and avoiding costly IRS mistakes. Below, we’ll walk you through the essentials you need to know before filing your S Corp taxes.
What Is an S Corporation?
An S Corporation is a special tax status granted by the IRS that allows your business to avoid double taxation. Instead of paying corporate income taxes, profits and losses “pass through” to shareholders, who report them on their personal tax returns.
This structure combines the liability protection of a corporation with the tax efficiency of a partnership or sole proprietorship — making it a popular choice for small business owners.
Steps to Set Up an S Corporation
Before you can file your first S Corp tax return, you’ll need to take these key steps:
1. Form a Legal Business Entity
Start by registering your business as a C Corporation or LLC with your state. You’ll need to file your Articles of Incorporation (or Organization) and pay any applicable state fees.
2. Obtain an Employer Identification Number (EIN)
Apply for an EIN through the IRS website. This number identifies your business for tax purposes and is required before you can elect S Corp status.
3. File Form 2553 with the IRS
To elect S Corporation status, you must file IRS Form 2553 (Election by a Small Business Corporation). Timing is critical — you generally need to file within 2 months and 15 days after the beginning of the tax year you want the election to take effect.
4. Meet IRS Eligibility Requirements
To qualify as an S Corporation, your business must:
- Be a domestic corporation
- Have no more than 100 shareholders
- Have allowable shareholders (U.S. individuals, certain trusts, and estates)
- Issue only one class of stock
Filing Your S Corp Tax Return
Once your S Corporation is officially recognized by the IRS, your next step is staying compliant with annual tax filings.
Key Forms to Know
- Form 1120-S: The main S Corporation income tax return
- Schedule K-1 (Form 1120-S): Used to report each shareholder’s share of income, deductions, and credits
- Form 941 and 940: Payroll tax forms if your S Corp pays wages
Payroll and Reasonable Compensation
One common mistake new S Corp owners make is not paying themselves a reasonable salary. The IRS requires shareholder-employees to be paid a fair wage for their work before taking distributions. Failing to do so can trigger penalties or reclassification of income.
At Midwest Professional Tax Services Inc, we help clients determine what constitutes “reasonable compensation” based on IRS guidelines and industry standards — ensuring full compliance and audit protection.
Common S Corp Tax Deductions
Your S Corporation may qualify for a variety of business deductions, such as:
- Employee salaries and benefits
- Office rent and utilities
- Business equipment and software
- Health insurance premiums
- Retirement plan contributions
Proper bookkeeping and documentation are crucial to maximize deductions and reduce your taxable income.
Why Work with a Professional Tax Service?
Filing an S Corp tax return can get complex — especially with payroll requirements, shareholder reporting, and state-level filings. Working with a trusted firm like Midwest Professional Tax Services Inc ensures your S Corporation stays compliant while optimizing your tax strategy.
Our team provides:
- Expert S Corporation setup and filing
- IRS Form 2553 preparation and submission
- Ongoing payroll and bookkeeping support
- Tax planning to minimize your overall tax liability
Final Thoughts
Setting up an S Corporation is one of the best ways for small business owners to save on taxes and protect their assets — but only if it’s done correctly. From formation to your first tax filing, the process requires precision, documentation, and strategic planning.
If you’re considering an S Corporation or need help preparing your S Corp tax return, contact Midwest Professional Tax Services Inc. today. Our experienced tax professionals are here to guide you every step of the way.