An S corp checklist for year-end asks the corporation for closed books (trial balance, balance sheet, income statement and every bank and loan statement tied out to December), officer W-2s and payroll reports, health insurance paid for owners, a record of each shareholder distribution, notes for shareholder loans, and each shareholder's basis schedule from prior years.
Books and statements on the S corp checklist
The books on an S corp checklist are the corporation's year-end financial records: a trial balance, a balance sheet and an income statement as of the last day of the tax year, plus the bank, credit card and loan statements that support them. Each account on the trial balance should tie to a statement for the same date.
Form 1120-S is built from the books, and the books are checked against the bank. The IRS Instructions for Form 1120-S include Schedule L, the balance sheet per books, and Schedule M-1, which reconciles income per books with income per return. Both start from the client's own year-end figures, so the request starts there too:
- Trial balance as of December 31, or the last day of a fiscal year, after the client's year-end entries.
- Balance sheet and income statement for the same date, plus the prior year's for comparison.
- General ledger detail for accounts the preparer will review closely, such as officer compensation, loans and distributions.
- Bank and credit card statements for every account, all twelve months, with the December statement as the tie-out point.
- Loan statements showing the year-end principal balance for each business loan.
"Tied out" means each balance sheet account matches its source document on the same date. The checking account on the trial balance should equal the December statement's ending balance, adjusted for outstanding items. A loan balance should match the lender's statement. A difference is a question for the client before it becomes a question on the return.
Which financial records belong on any business return, not only an S corporation's, is covered in the post on the financial records for a small business tax prep checklist. How to read a trial balance or spot a balance sheet that does not foot is the subject of the financial statements and ledgers category. A client whose books are not closed yet should work through the year-end bookkeeping checklist for clients before sending anything.
Officer payroll and reasonable compensation records for an S corp
Officer payroll records for an S corp are the documents that show what the corporation paid its shareholder-officers as wages: each officer's Form W-2, the year's quarterly payroll reports, and records of health insurance the corporation paid for owners. They matter because the IRS expects wages, not only distributions, when an officer works in the business.
The IRS page on S corporation compensation and medical insurance issues says an S corporation must pay reasonable compensation to a shareholder-employee before non-wage distributions are made, and lists factors such as training, duties, time devoted and what comparable businesses pay for similar services. The Form 1120-S instructions say distributions and other payments to a corporate officer must be treated as wages to the extent they are reasonable compensation for services. The checklist does not set the number. It collects the records the firm needs to look at it:
- Officer W-2s and the W-3 transmittal for the year.
- Quarterly payroll reports from the payroll provider for all four quarters, plus the annual summary.
- Payroll register showing each officer's gross pay by pay date.
- A short description of each officer's role and hours, in the client's words.
Health insurance for owners has its own reporting. The IRS compensation page says premiums the corporation pays for a shareholder-employee who owns more than 2% of the stock are reported as wages on the shareholder's W-2 for income tax, and when the coverage is under a plan for employees generally, they are not subject to Social Security, Medicare or FUTA, so they appear in Box 1 but not Boxes 3 and 5. The Form 1120-S instructions also say to report health insurance for a more-than-2% shareholder as an information item in Box 14 of that shareholder's W-2. So the checklist asks for the insurance invoices and confirms how they appear on each officer's W-2.
Larger corporations file an extra form. The Form 1120-S instructions say a corporation with total receipts of $500,000 or more completes Form 1125-E, Compensation of Officers, and carries its total to line 7. For those clients, read the current Form 1125-E before sending the request, so it covers the details the form asks for about each officer.
Shareholder distributions, loans and basis on the S corp checklist
Shareholder distributions, loans and basis are the records that track money moving between the corporation and its owners. The S corp checklist asks for a dated list of distributions to each shareholder, a note and payment history for every loan in either direction, and each shareholder's basis schedule carried forward from earlier years.
Distributions come first. Schedule K of Form 1120-S has a line for distributions and another for repayment of loans from shareholders, and each shareholder's K-1 reports their share. Ask for a list from the general ledger of every transfer to each shareholder, with date and amount, and a note of which transfers were distributions and which were loan repayments or reimbursements. A transfer coded to "owner draw" in software built for sole proprietors needs a second look.
Loans run both ways and both need paper:
- Loans from shareholders to the corporation. The note, if one exists, the interest terms and a record of advances and repayments during the year.
- Loans from the corporation to shareholders. The same records, viewed from the other side.
- Loans shareholders guaranteed. The bank note and the guarantee.
The guarantee matters for basis. The IRS Instructions for Form 7203 say a shareholder's loan basis is generally the balance the corporation owes them, and that loans a shareholder guarantees or co-signs are not part of loan basis except to the extent the shareholder makes payments on them.
Basis itself is the shareholder's record, not the corporation's. Form 7203 is filed by S corporation shareholders who claim a deduction for their share of a loss, receive a non-dividend distribution, dispose of stock or receive a loan repayment from the corporation. Its Part I tracks stock basis and Part II tracks debt basis. The corporation's books do not hold that history, so ask each shareholder, or their individual preparer, for last year's Form 7203 or basis worksheet. Without it, this year's figures have no starting point.
How shareholders should read the K-1 they receive, line by line, belongs to the tax forms and payroll category.
What changes for a partnership tax organizer?
A partnership tax organizer keeps the S corp checklist's books and statements, then swaps the shareholder records for partner ones: each partner's capital account, guaranteed payments to partners and the allocation terms in the partnership agreement. Last year's K-1s become the starting point for the owner records.
Capital accounts replace basis worksheets as the main owner record. The IRS Instructions for Form 1065 say item L of each partner's K-1 reports the capital account using the tax-basis method, figured with a transactional approach. Beginning capital is last year's ending capital, contributions are cash plus the adjusted tax basis of property contributed, and distributions are cash plus the adjusted tax basis of property distributed. So the organizer asks for:
- Last year's K-1s, for each partner's ending capital account.
- A list of contributions by each partner during the year, with dates, amounts and a description of any property.
- A list of distributions to each partner, in the same format.
Guaranteed payments take the place officer wages held on the S corp list. The Form 1065 instructions describe guaranteed payments as payments to a partner for services or the use of capital, determined without regard to partnership income. Ask for the ledger detail for each partner's guaranteed payments and whether any included health insurance.
The partnership agreement replaces the stock ledger. The Form 1065 instructions say income, gain, loss, deduction and credit are allocated among partners according to the partnership agreement. Ask for the current agreement and any amendment signed this year, especially if a partner joined or left.
The calendar changes little. The Form 1065 instructions give the due date for a calendar-year partnership as March 15, the 15th day of the third month after year end, and the Form 1120-S instructions use the same 15th-day-of-the-third-month rule for S corporations.
Which S corp records are hardest to rebuild later?
The S corp records hardest to rebuild later are shareholder basis history, notes for loans between the corporation and its owners, and the split between distributions and wages in years when no one tracked it. Each depends on what happened in earlier years, so a missing year cannot be recreated from this year's statements alone.
Untracked basis. A shareholder who never kept a basis schedule has a gap that runs back to the year the corporation started. Rebuilding it means pulling every K-1, every capital contribution and every distribution since then. Ask new S corp clients for basis history at engagement, while prior preparers can still be reached.
Loans with no note. Money the shareholder put in with no paper is hard to classify later as a loan or a contribution. Ask for any note, any board minutes and the payment history. If none exists, record that fact in the file.
Distributions coded as expenses. Personal spending paid from the business account and booked to an expense line hides both a distribution and an overstated expense. A ledger review of meals, travel and "miscellaneous" before the return is drafted is the place to look for them.
A mid-year ownership change. A shareholder who bought in or sold out during the year leaves the preparer with questions that only the paperwork answers. The purchase agreement and the date of the change belong in the file.
Example S corp checklist with return mapping
The checklist below is an example for a fictional client, Copperline Studio Inc., with two shareholders. Names, amounts and account numbers are invented.
| Item | Source | Feeds the 1120-S, the K-1s, or both |
|---|---|---|
| Trial balance at December 31 | Client's accounting file | 1120-S (Schedule L, M-1) |
| Operating account December statement, ending XXXX-4821 | Bank | 1120-S (tie-out) |
| Equipment loan statement | Lender | 1120-S (Schedule L) |
| Officer W-2s for both shareholders | Payroll provider | 1120-S (line 7) |
| Four quarterly payroll reports | Payroll provider | 1120-S (wages tie-out) |
| Owner health insurance invoices | Insurer | Both, through officer W-2s |
| Distributions list by shareholder | General ledger | Both (Schedule K, K-1s) |
| Shareholder loan note and payment history | Client and shareholder | Both, and the shareholder's Form 7203 |
| Prior-year basis worksheets | Shareholders or prior preparer | K-1 recipients' own returns |
| Fixed asset additions with invoices | Client | 1120-S (depreciation) |
A checklist like this gets long fast, and the bank and loan statements are where gaps hide. Schema CPA ties statement balances out month to month and calls out a missing month in a run of statements, and its workflow section shows where that check sits.
Preparer checklists are not limited to business returns. On the individual side, paid preparers who claim certain credits work through the Form 8867 due diligence checklist, which has its own record-keeping requirements.