The S-Corp Checklist: 7 Things That Should Happen Every Year (Not Just at Tax Time)

Running an S-corp isn't just a tax strategy — it's a compliance structure. And compliance structures require maintenance. Most S-corp owners do two things consistently: run payroll and file the return. That's not enough.

Here are seven things that should happen every year inside an S-corp, and why each one matters.

1. Document Your Reasonable Compensation Basis

The IRS expects S-corp owners who perform services for the company to pay themselves a reasonable salary before taking distributions. What reasonable means depends on your industry, your role, your time commitment, and market data for comparable positions.

That analysis should be documented every year — not assumed to be the same as last year. If compensation is challenged in an examination, 'we've always done it this way' isn't a defensible position. A written reasonable compensation memo tied to market data is.

2. Hold Your Annual Meeting and Document It

State law varies, but most states require corporations — including S-corps — to hold at least one annual meeting of shareholders and directors and to document it with meeting minutes. If your S-corp has never had a meeting on paper, that's a problem.

The minutes don't need to be elaborate. They need to exist, be dated, be signed, and reflect actual decisions made: compensation, distributions, major expenditures, officer elections.

3. Review Your Distribution Policy

S-corp distributions should be proportional to ownership and should come after payroll obligations are met. If you're taking large distributions without adequate salary, or if distributions are uneven across shareholders without a documented basis, you're creating exposure.

Review what you paid in salary versus what you distributed. Make sure the ratio makes sense and is defensible relative to your reasonable compensation analysis.

4. Track Shareholder Basis

Shareholder basis in an S-corp is what determines whether distributions are taxable and whether losses can be deducted. Basis is not tracked by the IRS — it's tracked by you. And it starts from day one.

If you don't have a running basis schedule, you may have been taking distributions that were taxable and didn't know it, or deducting losses you weren't entitled to. Reconstructing this retroactively is possible but painful. Maintaining it annually is straightforward.

5. Confirm Payroll Is Running Correctly

This means actual W-2 wages processed through payroll — not informal transfers to yourself categorized as payroll after the fact. The IRS has flagged S-corp owner compensation as an enforcement priority specifically because self-reported, year-end payroll adjustments are a known avoidance pattern.

Confirm your payroll frequency is consistent, your withholding is accurate, and your 941 deposits are current.

6. Review Your Accounting Method and Revenue Recognition

If your business is growing or your revenue mix is changing, your accounting method may need to be reviewed. Cash versus accrual affects when income is recognized and when expenses are deductible. Changes in method require IRS consent in most cases — which means this is not something to handle at filing time.

7. Check Your State-Level Obligations

S-corp status is a federal election. Your state may or may not recognize it, and state-level obligations — franchise taxes, annual report filings, state-specific owner compensation rules — vary widely. These often get ignored because they're less visible than federal filing, but lapsed state compliance can put the entity at risk.

→ If you want a structured process for staying current on all of this year-round — not just at filing time — the Small Business Compliance Retainer is built around exactly this kind of ongoing oversight. Learn more.