How is a S-Corporation taxed?
For purposes of Federal taxation, a S-Corporation is taxed differently than a C-Corporation. Typically, the S-Corporation files its annual return using the Form 1120S, as opposed to the 1120 for a C-Corporation. The 1120S is an informational return; it simply informs the Federal tax authorities the amount of net profit/loss made by the S-Corporation, the shareholders amongst which the profit/loss will be distributed, and the proportion in which the profit/loss is distributed to the shareholders. There is no tax payment/refund associated with the 1120S tax return, as the S-Corporation does not have the independent tax status that a C-Corporation has. Instead, the profits/losses of the S-Corporation are considered distributed to the shareholders in proportion to the ownership interest of the shareholder.
