When a new client brings Formations their previous year’s tax return, our tax experts review it as part of the onboarding process. We are not re-filing or auditing. We are looking for patterns. After thousands of reviews, the same issues keep surfacing, and most of them cost the filer money.
Some are true compliance problems, meaning the return is technically wrong or the S-Corp is operating outside IRS guidelines. Others are legitimate deductions that got left on the table. The first category carries real risk. The second category is closer to money that was already earned and simply never claimed.
Here is what we see most often.
This is the most common issue our experts we find, and it also has the greatest downside if left unaddressed. An S-Corp is a tax election, not a static structure. It has ongoing requirements that most owners are not actively tracking between tax seasons.
Everything in this section sits on the business return, Form 1120-S, and on how the S-Corp is run between filings.
The compliance gaps we see most often:
Any one of these on its own can be corrected with planning. What makes them serious is that they tend to travel together. An owner who pays themselves zero salary often also has no payroll system and no basis tracking, which means the return compounds the same set of problems year over year.
These are different from the compliance issues above, and they live on a different return. Those sit on the business return (Form 1120-S). The misses below show up on the personal return (Form 1040), either as itemized deductions on Schedule A or, for filers who operated as a sole proprietor before electing S-Corp, on Schedule C. Nothing about the return is technically wrong. The numbers just do not include deductions the filer was legally entitled to take. That is money the IRS was never going to hand back unless the filer asked for it. Five come up again and again.
This is one of the most frequently missed deductions, especially for filers who give throughout the year rather than making a single year-end gift. Recurring monthly donations, one-off cash gifts, and non-cash contributions like donated goods, clothing, or equipment all count, but only if they are documented. When receipts are scattered across email inboxes and paper records, people default to skipping the deduction entirely rather than trying to reconstruct it at tax time.
Self-employed filers often pay for insurance out of pocket and never categorize it as business-related. Health insurance premiums paid for the owner, spouse, and dependents can be deductible for qualifying self-employed filers. Other policies tied directly to the work, like professional liability, business interruption, or disability coverage structured around the business, can also qualify. The common mistake is treating every insurance payment as a personal expense by default.
Most filers assume medical expenses are not deductible, and for most years that is effectively true. Once total qualifying out-of-pocket medical expenses exceed 7.5% of adjusted gross income, though, the portion above the threshold can be itemized. In years with a major surgery, ongoing specialist care, fertility treatment, or a significant dental event, the threshold is easier to hit than people realize. We see these expenses omitted because the filer never ran the math.
Self-employed filers who use a personal vehicle for work are the largest group we see leaving deductions unclaimed. The usual pattern is one of two things. Either mileage was never tracked, so there is no defensible number at tax time, or business driving was tracked inconsistently, and the filer took a conservative guess that underrepresented actual use. Between client meetings, site visits, supply runs, and travel to coworking or office space, real business-use mileage is usually higher than the filer estimates.
The home office deduction is still commonly missed, most often because filers are nervous about taking it or assume it does not apply if they rent. Neither concern is accurate on its own. When a portion of the home is used regularly and exclusively for business, the deduction is legitimate, whether the filer rents or owns. The simplified method calculates it at $5 per square foot up to 300 square feet, which makes documentation straightforward. Filers who skip it often miss out on $1,500 or more in deduction value each year.
The deductions and compliance issues above are not obscure. Most are covered in basic tax literature. What they have in common is that they require either year-round documentation or an ongoing management process, and most self-employed filers are set up for neither.
A few patterns drive the misses:
S-Corp compliance drifts for similar reasons. The election is made once, then nothing formal happens between filings. Payroll, basis tracking, reasonable compensation reviews, and separation of personal and business spending all need ongoing attention, not a yearly rush.
Every issue covered comes back to the same root cause. Tax preparation alone cannot catch them. By the time a preparer sees the numbers in March, the year is already closed, and the documentation either exists or it does not.
The filers who consistently avoid these issues are not more disciplined or more tax-savvy. They have a team working on their books, payroll, and strategy throughout the year, not just at filing time.
That is what Formations does. Our team handles S-Corp compliance, strategy, and return preparation that actually reflects what you are entitled to claim. Formations clients save an average of $14,801 per year because nothing slips through the cracks.