How much is an S-corporation taxed?

The simple answer is: there is no federal income tax levied on an S-corporation. S-corporations are pass-through entities. An S-corporation files a business tax return (Form 1120-S) to report the profit it generated for the year, but this profit is not subject to any tax rate. Instead, the profit is passed through to its owner, who then reports that profit on the personal income tax return (Form 1040) and pays regular income tax on that business income (as well as any other income the taxpayer received). If the S-corporation has more than one owner, the profit reported on Form 1120-S is allocated among the owners in proportion to their percentage ownership interest in the S-corporation.

However, an S-corporation may be subject to other types of taxes:

● Payroll taxes: an S-corporation must pay employment taxes on its employees’ compensation. The S-corporation must withhold its employees’ federal and state income taxes, pay Social Security and Medicare taxes, and pay unemployment taxes. In addition, the IRS requires owners of an S-corporation to designate a "reasonable" amount of profits as salary, meaning the S-corporation owners will also be subject to Social Security and Medicare taxes on this salary. S-corporation owners do not pay Social Security and Medicare taxes on business profits except that portion that is designated as salary, so this is advantageous compared to sole proprietorships and partnerships who must pay Social Security and Medicare taxes on their entire business profit.

● Property taxes: If the S-corporation owns real property, the S-corporation must pay property taxes on this property.

● Sales tax: S-corporations are required to pay state sales taxes in the same manner as other purchasers.

● State taxes: In some states, S-corporations must also pay additional fees and taxes. For example, in California, an S-corporation must pay tax of 1.5 percent on its income with a minimum annual amount of $800.

Advance Child Tax Credit Payments in 2021

For tax year 2021, families claiming the Child Tax Credit for tax year 2021 will receive up to $3,000 per qualifying child between the ages of 6 and 17 and $3,600 per qualifying child under age 6. This is up from $2,000 per child in 2020.

Advance payments of the 2021 Child Tax Credit will be made regularly from July through December. The total of the advance payments will be up to 50 percent of the total Child Tax Credit. So, for a child between the ages of 6 and 17 the taxpayer will receive monthly advance payments in the amount of $250 from July to December, which is a total of $1,500 over the six-month period (50% of the total $3,000 tax credit), and then the taxpayer will receive the other $1,500 when they file their 2021 tax return and receive their tax refund in 2022. For a child under the age of 6, the monthly advance payments will be $300 from July to December, for a total of $1,800, and the other $1,800 will come in 2022 with their tax refund.

The credit begins to phase out when a taxpayer’s income exceeds $75,000 as a single filer, $112,000 as head of household, or $150,000 filing jointly. Taxpayers who receive a larger advance than they’re eligible for will generally have to repay the excess. This may occur, for example, if the taxpayer gets a higher-paying job in 2021. Taxpayers can opt out of the advance payments.

Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns, so the IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they are eligible for the appropriate amount. Eligible taxpayers do not need to take any action to receive the advance payments other than to file their 2020 tax return if they have not done so.

The Mortgage Interest Credit

The mortgage interest credit is a nonrefundable credit for mortgage interest paid. The credit is intended to help lower-income earners afford home ownership. Income limits vary by location.

Form 8396 is the tax form used by homeowners to claim the mortgage interest credit. Taxpayers can only claim the credit if they receive a document called a mortgage credit certificate (MCC) from a state or local government agency.

The IRS limits the mortgage interest credit to a maximum of $2,000 per year. If the total amount of mortgage interest paid is more than the amount of the credit allowed on Form 8396, the taxpayer can claim an itemized deduction on Schedule A for the remaining amount of interest.