Generally speaking, S-Corporations do not pay tax. If they were previously a C-Corp it’s possible they could run into some built-in gains, but those are somewhat unusual. A true S-Corp shouldn’t pay any tax, but sometimes they do need to make a tax deposit. No tax liability, but a tax deposit required? Yes it’s as strange as it sounds.

For fiscal year S-Corps that have individual shareholders, a deferral period occurs between the fiscal year-end and the calendar year-end that the individual shareholders have. That deferral creates a tax benefit the IRS wasn’t too pleased about. So they created a tax deposit system where the S-Corp calculates the tax being deferred and makes a deposit with the IRS for that amount. Every year the company re-calculates and if the deferral decreases, the S Corp gets a refund or a partial return of their deposit. If the Read More