Summary of What This Blog Covers
- DIY tax software often misses critical S Corp filings like Form 1120S and K-1s.
- Mistakes can lead to IRS penalties, audits, and denied loans.
- Common errors include skipping payroll and misclassifying the business.
- A CPA ensures accurate filings, compliance, and smarter tax strategy.
Let’s be honest. TurboTax, H&R Block, and other DIY tax software platforms have done an amazing job branding themselves as the fast, friendly, affordable way to “do your taxes.” And if you’re filing a W-2 with a couple of deductions and maybe a 1099, that’s probably true.
But if you own an S Corporation?
You’re not filing a tax return. You’re managing an entity. And no matter how intuitive the software feels, it is not built to handle the complex tax compliance landscape of a business owner operating under Subchapter S.
At Insogna, we have established and highly trusted Austin, Texas CPAs. We’ve helped business owners in nearly every industry recover from the consequences of DIY tax filings gone sideways. And here’s the kicker: in almost every case, they thought they had filed everything correctly until the IRS or a lender or a partner flagged a massive oversight.
Let’s walk through exactly why DIY software is a risky bet for S Corps, what common mistakes are costing thousands in penalties, how to assess whether you’ve made them, and how to fix those mistakes before they cost you even more.
The Truth About DIY Tax Software
Platforms like TurboTax Online, TaxAct, TaxFreeUSA, and H&R Block Online market simplicity. Their interfaces are slick. Their language is casual. Their value proposition is clear: you don’t need a CPA, just their system.
But here’s the problem: these platforms are designed for simplicity, not tax law accuracy.
They don’t:
- Ask complex follow-up questions based on IRS audit risk
- Analyze your entity structure
- Validate whether you’ve filed all required forms
- Identify payroll violations
- Flag S Corp-specific errors
They exist to file your return not to protect you from mistakes.
When you’re managing an S Corp, your tax situation includes:
- Corporate income and pass-through taxation
- Schedule K-1 reporting
- Reasonable compensation analysis
- W-2 and 941 filings
- 1120S compliance
- FBAR disclosures (if you have foreign financial connections)
That’s not basic tax prep. That’s a legal, financial, and strategic process that needs real expertise not a flowchart in a browser.
Real-World Examples: The Cost of “Click-and-File”
Scenario 1: No Form 1120S
A client filed with TurboTax Free File. He submitted his 1040 tax form, clicked submit, and assumed everything was good. But his S Corporation never filed Form 1120S, the federal income tax return for S Corps.
What happened next?
- Six months later, the IRS assessed $660 in late penalties ($220 per shareholder, per month for three months).
- He hadn’t issued Schedule K-1s, so his personal return was incomplete.
- A tax notice arrived. His pass-through income hadn’t been legally reported.
It took three amended filings and a penalty relief request to clean it up.
Scenario 2: Missed K-1s and Bank Loan Denial
A startup founder with two partners used TaxAct to file their business and personal taxes. None of them had experience issuing K-1s. The software didn’t prompt them, so they skipped it.
They only realized something was wrong when they applied for a business line of credit and couldn’t substantiate the previous year’s income.
The results:
- All three co-owners had to amend their personal returns.
- The business tax return had to be refiled.
- The loan application was delayed 90 days and required CPA-verified documentation.
All because their DIY software didn’t prompt them to complete the full S Corp process.
Scenario 3: Payroll Oversight and IRS Red Flags
One of the most common violations we see: S Corp owners who take distributions but never pay themselves a salary.
The IRS requires that S Corp owners who perform services for the company pay themselves a “reasonable salary.” That means actual W-2 wages, with payroll taxes, withholding, and Form 941 filings.
When you skip this?
- The IRS considers it an attempt to avoid payroll taxes.
- You could be assessed for back taxes, penalties, and interest.
- You may even trigger an IRS audit, especially if distributions exceed net profit.
DIY software like TurboTax Online does not verify or enforce this. It assumes you already know the rule and if you don’t? You’re on the hook.
Common Mistakes in DIY S Corp Tax Filings
1. Not Filing Form 1120S
This is the primary form that reports your S Corp’s income, deductions, and other tax information. If your tax software never asked for it or you didn’t know you needed it, you’re out of compliance.
Penalty: $220 per shareholder per month, up to 12 months.
2. Failure to Issue Schedule K-1s
Every shareholder must receive a Schedule K-1 so they can report business income on their personal return. Missing this isn’t just a clerical error, it’s a direct path to a flagged return or an audit.
3. No Payroll or W-2s for Owners
You cannot take distributions without paying yourself first. If your software allowed you to take profits without W-2 income, you may owe:
- Back payroll taxes
- Employer share of FICA
- Late filing penalties for Form 941 and Form 940
4. Misclassifying the Entity Type
We’ve seen TurboTax default users to sole proprietorship status even when they selected “S Corp” in the entity setup. This misclassification affects tax rates, deductions, and IRS communication.
5. Ignoring State-Specific Filing Requirements
Most DIY platforms offer federal filing, but don’t walk you through state-level S Corp compliance, which may include:
- Franchise tax filings
- State income tax estimates
- S Corp election forms (like California’s 100S)
IRS Audit Risk: Where DIY Software Leaves You Vulnerable
Here are just a few red flags the IRS looks for—none of which are reliably caught by DIY tax software:
- Distributions with no salary (a major audit trigger for S Corps)
- Inconsistent K-1 reporting
- Underreported business income
- Failure to file 1120S
- Improper deductions for personal expenses
- Unfiled payroll forms
- No FBAR disclosure for offshore accounts or foreign bank access
Even if you’re not trying to deceive the IRS, these omissions are treated as negligence. And software doesn’t shield you from liability.
How to Review and Fix Past S Corp Mistakes
If you’ve used TurboTax, TaxAct, or WaveApp and now you’re worried something may be off, don’t panic. But don’t ignore it either.
Step-by-Step Recovery Plan
- Have a CPA review your prior returns
This includes corporate and personal filings. A certified CPA in Austin, Texas can spot errors in minutes that software will never flag. - File or amend Form 1120S
If your S Corp return is missing, you must file it even late. You may also need to file prior-year forms if multiple years are affected. - Create and distribute accurate Schedule K-1s
This applies even if you’re the sole shareholder. You still need a K-1 to accurately reflect your pass-through income. - Establish a proper payroll system
This includes setting up a reasonable salary, filing Form 941 quarterly, and handling withholding properly. - Amend your 1040
If your personal income was underreported because of missing K-1s, you need to file a corrected return. - Request penalty abatement
A well-crafted abatement request by a tax advisor in Austin can often reduce or eliminate penalties, especially if this is your first offense.
The Strategic Advantage of Working with a CPA
This isn’t just about avoiding penalties. It’s about using tax compliance as a foundation for smarter financial strategy.
A certified public accountant near me or tax accountant in Austin can help you:
- Maximize deductions while staying IRS-compliant
- Plan year-round for quarterly tax obligations
- Adjust payroll and distributions for cash flow optimization
- Ensure accurate financial reporting for lending and investment
- Track depreciation and capital purchases
- Navigate foreign asset disclosure and FBAR filing when necessary
- Create multi-entity planning strategies for growth and risk management
DIY software can’t do any of that. It wasn’t designed to.
Final Word: Compliance Isn’t Optional, But Strategy Is
You don’t just want to “file taxes.” You want to use tax law as a tool to build wealth, protect your assets, and keep more of what you earn. That requires more than software, it requires partnership, planning, and precision.
If you’re running an S Corp, every year you delay working with a CPA increases your audit risk and your penalty exposure. Don’t let a $99 software subscription cost you $10,000 in fines.
Let’s Clean This Up Together
At Insogna, we help business owners like you move from reactive tax prep to proactive financial strategy. We’re a full-service Austin accounting firm offering:
- Business tax reviews
- S Corp compliance support
- Payroll setup and guidance
- Entity structure consulting
- Ongoing CFO-level insight
You’ve built the business. Now let’s make sure your tax strategy matches your ambition.
Schedule your S Corp compliance review today with a CPA near you who doesn’t just file returns but builds results.