S corporations are one of the most powerful tax-saving tools available—but they’re also one of the most commonly misunderstood.

Every year, we review dozens of S corporation tax returns prepared by other firms that miss critical requirements, trigger avoidable IRS scrutiny, or completely fail to optimize the structure. And many business owners don’t even realize there’s a problem—until the IRS comes knocking.

If your current tax advisor hasn’t explained the unique responsibilities of operating as an S corp, this post is for you.

What Makes S Corps Different

An S corporation (Form 1120-S) is a pass-through entity. It allows business owners to avoid double taxation—but only if you follow the rules.

Key obligations include:

  • Reasonable compensation – You must pay yourself a W-2 wage as an officer of the company.
  • Timely payroll tax filings – If you’re taking wages, you need to file 941s and remit payroll taxes.
  • Shareholder loan tracking – Any money you take out that isn’t payroll or a dividend must be tracked properly.
  • Basis tracking – If you take losses, you need basis to deduct them.

These aren’t optional—they’re IRS red flags if skipped.

Common Mistakes We See From Other Firms

  1. No officer compensation – Owner takes all income as distributions with no payroll. 🚩
  2. Missing payroll filings – IRS assesses penalties for not filing 941s, even with no payroll.
  3. Messy bookkeeping – Loans to/from shareholders are undocumented, distributions exceed basis, or capital accounts aren’t tracked.
  4. Lack of planning – The S corp exists, but no one’s monitoring profit trends or tax exposure.

We’ve seen all of these—and fixed them. Sometimes, we even inherit clients who didn’t know they had elected S corp status at all. Their prior firm just filed Form 2553 and never explained the ongoing requirements.

If your firm never discussed reasonable comp or hasn’t pulled a payroll report this year, that’s a red flag.

What Polaris Tax & Accounting Does Differently

We don’t just check boxes—we run diagnostics. As part of our S corp support, we:

  • Manage your accounting and bookkeeping records to ensure full compliance
  • Implement a payroll system and ensure tax filings are aligned with payroll filings
  • Track basis and capital accounts accurately
  • Provide quarterly tax projections based on your actual income

If you’re unsure whether your S corp is set up and maintained properly, don’t guess—get a second opinion. We’ve helped dozens of business owners in Plantation, FL and beyond avoid penalties and restructure their S corps the right way.

📚 Related post: Why Your Bookkeeping System Is Costing You at Tax Time

📚 Related post: Tax Projections vs. Tax Prep: What’s the Difference

Final Word

An S corp can save you thousands—but it can also cost you if it’s not handled correctly. Don’t let one wrong form or a missing W-2 turn into an audit risk.

📍 Based in Plantation, FL. Serving small business owners nationwide.

📞 Call Polaris Tax & Accounting at 954-423-3577
🌐 https://polaristaxandaccounting.com/services/tax-planning/