each entity has to file its own returns. in any event the partnership would have to file a final return for 2019. payments made to the partnership have to be reported by it and the same is true for the S-corp. if the partnership has net income, the partners will owe self employment tax which they will be evading if the income is reported by the S-Corp. By the way the S-Corp needs to pay salaries to its owners for services perform
payments the partnership and S-Corp makes to it's vendors has to be reported by eachon their own return in order for each of them to properly report their income or loss. S-corps shareholders do not pay SE tax but
do have fica and medicare taken out of their wages.
what should be done if the S-Corp deposited income checks for services performed by the partnership. the partnership should be the one to report it.
payments made by the S-Corp for products or services purchased or incurred by the partnership should be reported by the partnership.
their is a code section that deals with your situation. its 162 which allows a deduction for ordinary and necessary business expense incurred in carrying on a trade or business. the wrong entity taking the deduction would mean that the expense is not ordinary and necessary and could be disallowed by the iRS
other code sections, court cases, etc deal with self employment taxes and the wrong entity picking up the income.
if you have little knowledge of the tax aspects of an S-Corp, I suggest you use a pro to do the first year's return. The pro can bring you up to speed on things you need to do and watch for that don't apply to a partnership. Mess up in certain areas and the IRS could revoke the corp's S-Corp status.
besides the IRS there could be state tax issues.
