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There is NO dividends in case of S-corporation.S-corporations are so-called "pass through" entities - means -
- S-corporation files income tax return - reports income and deductions - and calculate taxable income
- however because S-corporation doesn't pay income tax - that taxable income is passed to shareholders.
- each shareholder receive schedule K1 that reports his/her share of taxable income - and use that information when individual tax return is prepared.
- it doesn't matter if taxable income is distributed or not - that is between shareholders how they want to use the profit.
- in additional shareholders normally are also employees of that S-corporation. As employees - they receive wages - which is reported as taxable income on W2
- for S-corporation - wages are usually deductible expenses on form 1120S.
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