S-Corporation Year End Tasks and Bookkeeping

Deadlines for S-Corporation and Partnership Returns

  • IRS Deadline:  S-Corp and Partnership returns are due March 15.
  • Our Deadline:We will need your paperwork in Early February to avoid the need for filing an extension. (Paperwork for your personal 1040 return can come later.)
  • * The late filing penalty with no extension is $205 per month, per partner or shareholder.

Paperwork checklist

We can directly access most client's Quickbooks accounts to download the reports I need to complete your tax return. If this is the case, you probably need to do nothing more than to ask your bookkeeper to do a year end reconcile and to let me know when everything is ready to go.

  1. Prior Tax Returns (New clients only)
    • 1120-S Tax return from last year (New clients only)
    • IRS acceptance letter of your S-Corp Election (New clients only)
    • Depreciation schedule from last year (New clients only, usually inside last year's tax return, please check)
  2. Changes and updates in your business since last year
    • Name, address, and SSN/EIN of each Shareholder during the tax year if changed from last year.
    • Any letters or notices you received from the IRS last year
    • Any Forms 1099-B, 1099-DIV, 1099-INT, 1099-K, or 1099-MISC received
  3. Business Income and Expenses (Profit and Loss report)
    • Common Expenses
    • List of major asset or equipment purchases (Typically over $1,500 per item)
    • 401k / SEP Employer Contributions
    • Payroll Expenses (see below)
  4. Balance Sheet, end of year
    • Confirm that balance sheet was reconciled and matched up against actual statement balances.
    • Show any unpaid short term liabilities such as 4th quarter payroll taxes
    • New Loans, made both to and from the company
  5. Payroll Details, please break out
    • Shareholder / Officer Compensation (please include W-2's)
    • Shareholder health insurance included on the W-2
    • Employee Compensation
    • Company portion of payroll taxes
    • Payroll Processing fees
  6. Shareholder contribution and distribution amounts, if any
    • Dates and amounts of contributions and distributions. Distributions should match shareholder distributions on the balance sheet. (See "Bookkeeping chores" below.)
    • Shareholder loans to and from the company.


Bookkeeping Chores to finish before December 31

  • Be sure that S-Corp shareholders were paid "Reasonable Compensation" that will appear on the W-2. A shareholder cannot take distributions from an S-Corp without first taking out a reasonable W-2 salary.
  • Clean up "Loans" that were really distributions. Document true loans with signed notes.
  • Health Insurance Insurance for owner shareholders must appear on the W-2. Scroll down for details on how to do this.
  • Reimburse Shareholders and employees for personally paid travel, car mileage and other business expenses before Dec 31.
  • Reconcile the bank and liability accounts and confirm books really match the bank.
  • Prepare 1099-NEC and 1099-MISC for outside contractors paid more than $600 over the year. Contact us by January 10 if you want us to create, mail and file the forms.
  • Balance sheet 12/31: Equity Section: "Shareholder Distributions" should equal actual distributions for the year. This will then be closed into retained earnings to reset distributions to zero for the next year.
  • Close the books for the year. These excellent short videos by Candus Kampfer will show the entries to make.


How to include S-Corp Shareholder Health Insurance on the W-2

Health insurance premiums paid by the company for its 2% shareholder-owners-employees ("Shareholders") and their dependents must be reported as W-2 wages, not pretax benefits. This includes insurance that the shareholder purchased in their own name, which will be reimbursed. This amount is included in "Shareholder Compensation" on the S-Corp tax return, which reduces net income. When the W-2 is prepared correctly, these amounts are not subject to social security or medicare. These amounts can then be deducted on the shareholder's personal 1040 to claim the valuable Self-Employed Heath Insurance Deduction.

  • This must be entered on the W-2's issued in January, or the shareholder will lose this deduction.
  • The deduction cannot exceed the amount of W-2 wages paid. (If this exceeds wages, you will have a negative W-2).
  • With minor exceptions, you have to offer equal quality health insurance to employees.
  • Be sure to reduce the insurance you are expensing by the amount included in the shareholder's compensation so you don't double-dip this expense.
  • The shareholder cannot take this insurance deduction if they or their spouse is eligible for employer-subsidized health insurance, whether or not they choose to take it.
  • If the rank and file employees are excluded from the health plan, the wages will become subject to social security and medicare withholding.

Bookkeepers: Note the reduction in Social Security and Medicare wages to match the $5000 Health Insurance expenditure on behalf of the shareholder. There is also a notation in box 14. See the links below to see how to set this up in Quickbooks.

Reimbursing the Shareholder if they personally paid for the insurance

If the shareholder buys a policy in their own name and personally makes the payments, the S-Corp must reimburse, then include these amounts as W-2 wages not subject to Social Security or Medicare. This is then deducted on the personal return as described above. Docs describing the arrangement and receipts for amounts reimbursed should be kept in the corporate files. Reimbursements must be made before the end of the year.

Shareholder has Medicare

Premiums for all parts of Medicare qualify as Health insurance that the S-Corp can reimburse. These reimbursements must be reported to the Shareholder as wages on Form W-2 as described above. The employee will then take the self-employed health insurance deduction on their personal taxes. Reimbursements must be made before the end of the year.

ACA Marketplace (Obamacare) premiums paid by the Shareholder

Shareholders may also be reimbursed for premiums for policies purchased on the ACA marketplace. The amount that can be deducted has a complicated circular relationship with advance subsidies given to reduce the monthly cost of premiums. We strongly suggest that shareholders regularly check and adjust the marketplace monthly insurance subsidy and carefully craft the final end of year reimbursement. This is especially important if your S-Corp income fluctuates. Reimbursements must be made before the end of the year.

Links / References

Closing Entries
Overview of closing entries from Quickbooks
Cliff Notes on bookkeeping closing entries
Bookkeeping Closing Entries

Medical Insurance on the W-2
Quickbooks: How to set up S-corporation medical payroll items
Gusto 2% Shareholder Benefits (second to last dropbown)
Quickbooks: Apply S Corp Medical at year end for corporate officers
This article is a simplification of the rules. Please refer to IRS Notice 2008-1 or call us for full details.