J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

11.14 Stockholder Reporting of S Corporation Income and Loss

S corporations are subject to tax reporting rules similar to those applied to partnerships. However, shareholders who work for the corporation are treated as employees for payroll tax purposes. The IRS and the courts require that S corporation shareholders receive reasonable compensation on which Social Security and Medicare taxes (FICA) must be paid. Self-employment tax does not apply to a shareholder’s salary or similar receipts from the S corporation.

Your company must give you a copy of Schedule K-1 (Form 1120-S), which lists your share of income or loss, deductions, and credits that must be reported on your return. For example, your share of business income or loss is reported on Schedule E and is subject to passive activity adjustments, if any. Interest and dividends from other corporations are reported on Schedule B, capital gains and losses on Schedule D, Section 1231 gains or losses on Form 4797, and charitable donations on Schedule A. Tax preference items for alternative minimum tax purposes are also listed.

Health insurance premimums paid by an S corporation for more-than-2% stockholders are treated as wages, deductible on Form 1120-S by the corporation and reported to the stockholder on Form W-2. A more-than-2% shareholder who reports premiums as wages may deduct the premiums on Line 29 of Form 1040 as an adjustment to income.

Allocation to shareholders.

The following items are allocated to and pass through ...