Accounting Articles > Federal Income Tax:

Form 1120S distributions reported on Schedule K-1

S-Corporations are pass through entities from a taxation standpoint. If you own an S-Corp and you have an income taxable year, then the federal income tax is generally payable on your personal tax return, or Form 1040 at the federal level. The income is passed through via Schedule K-1.

These are quite complicated forms. The K-1 is the bridge from the S-Corporation return to your personal income tax return. The main point is that you will only pay income tax once, rather than being subject to the double income taxation of a regular or C-Corporation. If there is a loss, then the loss could possibly be deducted on your personal income tax return if you have a basis for the deductibility of that loss.

K-1's report ordinary business income and losses, real estate income and losses, passive income such as interest, both types of dividends, royalties, short term capital gains and losses, long term capital gains and losses, income subject to IRS sections 1250 and 1231, to name just a few. The expense side K-1's report Section 179 deductions, other depreciation, contributions such a charitable, investment interest expense, non-deductible expenses, not to mention other depreciation items and adjustments. Also reported are foreign transactions, credits, alternative minimum tax issues, and other items affecting shareholder basis. Here's the point...

Unless you have public accounting letters behind your name, and a decade of experience handling these complicated taxation issues...don't even try.

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