Form 1120-S vs. Form 1065

What is Form 1120-S?

Form 1120-S is the federal income tax return for S Corporations. An eligible corporation or LLC that has elected S Corp status by filing Form 2553 uses this form to report annual income, deductions, and credits.

Key Features of Form 1120-S:

• Income, losses, deductions, and credits are passed through to shareholders.
• Shareholders receive Schedule K-1, reporting their share on individual returns.
• Avoids double taxation, unlike C Corporations.
• Owners can be employees and receive a salary, which is subject to payroll taxes, while dividends/distributions are not.
• Must meet eligibility rules (domestic entity, ≤100 shareholders, only one class of stock, U.S. citizens/residents only).

File your Form 1120-S with TaxZerone — IRS-authorized e-filing with built-in checks, automatic Schedule K-1 generation, and secure submission.

What is Form 1065?

Form 1065 is the federal tax return for Partnerships and multi-member LLCs taxed as partnerships. Partnerships are not separate tax-paying entities; instead, income passes through to partners.

Key Features of Form 1065:

• Reports partnership income, deductions, gains, and credits.
• Each partner receives Schedule K-1 to include their share on personal returns.
• Entire distributive share is usually subject to self-employment tax.
• Profit-sharing is flexible and does not have to follow ownership percentages.
• Partners cannot be employees; they are considered self-employed.

Major Differences Between Form 1120-S and Form 1065

Eligibility Requirements

To File Form 1120-S (S Corporation):

• Must be a domestic corporation or LLC electing corporate taxation.
• Limited to 100 shareholders.
• Only one class of stock allowed.
• Shareholders must be U.S. citizens or residents (no partnerships, corporations, or nonresident aliens).
• Must elect S status by filing Form 2553.

To File Form 1065 (Partnership):

• Must be a domestic or foreign partnership with two or more members.
• No ownership restrictions — can include individuals, corporations, foreign persons, or entities.
• Flexible agreements allow customized profit allocations.

Tax Treatment: Self-Employment vs. Payroll

• S Corporations (Form 1120-S):
• Shareholder-employees receive a salary subject to payroll taxes.
• Dividends/distributions are not subject to self-employment tax, potentially reducing overall tax liability.
• Partnerships (Form 1065):
• Partners cannot draw salaries.
• Their entire distributive share of business income is generally subject to self-employment tax.

Reporting and Filing Requirements

For S Corporations:

• File Form 1120-S annually with the TaxZerone.
• Provide each shareholder with Schedule K-1.
• May need to file state corporate tax returns depending on jurisdiction.

For Partnerships:

• File Form 1065 annually.
• Provide each partner with Schedule K-1.
• Partners include income on their personal returns (Form 1040).

Which Form Should You File?

Choose Form 1120-S if:

• You qualify as an S Corporation.
• You want to save on self-employment taxes by splitting compensation into salary and dividends.
• Your ownership is limited to U.S. persons and within IRS restrictions.

E-file Form 1120-S securely with TaxZerone today and simplify your S Corporation tax compliance.

Choose Form 1065 if:

• You operate as a Partnership or multi-member LLC.
• You want flexibility in allocating profits among partners.
• You don’t want restrictions on ownership.

Making the Right Filing Choice for Your Business

Both Form 1120-S and Form 1065 are used for pass-through taxation, but they differ in structure, ownership rules, and how income is taxed. Partnerships (Form 1065) are simpler and more flexible, while S Corporations (Form 1120-S) often provide tax savings through payroll and distribution strategies.

Choosing the right filing depends on your business structure, ownership goals, and tax planning strategy.