TN 14 (04-92)
Like any other corporation, an S corporation is separate and distinct from its shareholders.
The basic difference from other corporations is it does not pay Federal corporate
income tax. Income is passed directly to the shareholders for Federal income tax purposes.
The corporation is carrying on any trade or business. The shareholders are not self-employed
nor is their income NESE.
The income from an S corporation may take three forms:
Wages, received by shareholders as employees of the corporation,
SEI, for fees paid to a corporate director,
Dividends, paid to shareholders.
See RS 02101.016 - Officer or Director of a Corporation for information on the employee status of
an officer or director of a corporation.
Do not question the classification of income unless improper reporting is apparent;
e.g., all income is reported as SEI one year and dividends the next.
Special rules for health insurance tax deductions apply through 6/30/92 for self-employed
individuals and S corporation shareholders.
Self-employed individuals may continue to claim deductions on their tax returns for
health insurance through 6/30/92. This extends the right to claim deductions which
were to terminate 12/31/91.
Subchapter S shareholders may claim health insurance deductions in the same manner
as self- employed individuals for the period 1/1/90 through 6/30/92.
This deduction was previously available only to self-employed individuals.