I am filing for an S corporation and it shows an excess net passive income Tax statement. I've never done this and was wondering what is that?

[kimpham4484]

Also- besides a Schedule k-1 what 1040 do I have to file?

[Fern]

If  an S corporation has
(1) accumulated earnings and profits at the close of such taxable year, and
(2) gross receipts more than 25 percent of which are passive investment income,
then there is a tax that is charged on the income of the S corporation. The tax is calculated on the excess net passive income.

There are things you can do to avoid the passive income tax.  See http://www.journalofaccountancy.com/issues/2011/jan/20103334.html for suggestions.

You need to file Form 1120S with the IRS.  

You need to issue Schedule K-1 to all shareholders for their share of income or losses

[kimpham4484]

hi, thank you for answering this. However, I'm still new to turbo tax and tax in general. Can you please explain this in lemans term? it is still placing me back onto the excessive net passive income tax and asking me for a tax exempt interest