Updated October 18, 2026. Quick answer: Lines 7 to 12 are the first six deductions on the S corporation’s page 1: compensation of officers, salaries and wages, repairs and maintenance, bad debts, rents, and taxes and licenses. Each takes only the amount tied to the corporation’s trade or business and not reported elsewhere on the return. The amounts come from payroll records, ledgers and invoices.
Line 7: compensation of officers
The form’s caption is “Compensation of officers (see instructions”. The instructions open with a caution: “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” They then say “Enter on line 7 the total compensation of all officers paid or incurred in the trade or business activities of the corporation.” On who counts: “The corporation determines who is an officer under the laws of the state where it is incorporated.” The related reasonable-pay question is discussed at S corporation reasonable salary.
The instructions add a filing trigger: “If the corporation’s total receipts (page 1, line 1a, plus lines 4 and 5; income reported on Schedule K, lines 3a, 4, 5a, and 6; income or net gain reported on Schedule K, lines 7, 8a, 9, and 10; and income or net gain reported on Form 8825, lines 2, 21, and 22a) are $500,000 or more, complete Form 1125-E, Compensation of Officers.” They continue “Enter on Form 1120-S, line 7, the amount from Form 1125-E, line 4.”
Line 8: salaries and wages
The caption is “Salaries and wages (less employment credits)”. The instructions say “Enter on line 8 the total salaries and wages paid or incurred to employees (other than officers) during the tax year.” On credits they say “If the corporation claims a credit for any wages paid or incurred, it may need to reduce the amounts on lines 7 and 8.” And on what stays off the line: “Don’t include salaries and wages reported elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.”
Fringe benefits for owners
The instructions say “Include fringe benefit expenditures made on behalf of officers and employees owning more than 2% of the corporation’s stock.” They add “Also report these fringe benefits as wages in box 1 of Form W-2.” Fringe benefits for owners of 2% or less are handled on line 18, which is on the lines 13 to 22 page. The partner-side equivalent of this health insurance question is at Schedule 1 line 17.
Line 9: repairs and maintenance
The caption is “Repairs and maintenance”. The instructions say “Enter the cost of repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that don’t add to the value of the property or appreciably prolong its life.” They also say “The corporation can deduct these repairs only to the extent they relate to a trade or business activity.” On improvements: “New buildings, machinery, or permanent improvements that increase the value of the property aren’t deductible as repair and maintenance expenses.” The next sentence reads “These expenses must be capitalized and depreciated or amortized.”
Line 10: bad debts
The caption is “Bad debts”. The instructions say “Enter the total debts that became worthless in whole or in part during the tax year, but only to the extent such debts relate to a trade or business activity.” They also say “Report deductible nonbusiness bad debts as a short-term capital loss on Form 8949”. The cash-method limit reads “A corporation that uses the cash method of accounting can’t claim a bad debt deduction unless the amount was previously included in income.” Form 8949 is explained at Form 8949.
Line 11: rents
The caption on the form is simply Rents. The instructions say “Enter rent paid on business property used in a trade or business activity.” They also say “Don’t deduct rent for a dwelling unit occupied by any shareholder for personal use.” For a rented or leased vehicle, the instructions say “enter the total annual rent or lease expense paid or incurred in the trade or business activities of the corporation during the tax year.” and “Also complete Form 4562, Part V”. The instructions include a table of vehicle values that can trigger an inclusion amount; this page does not reproduce it, so read the table in the line 11 instructions by name. Form 4562 is covered at Form 4562.
Line 12: taxes and licenses
The caption is “Taxes and licenses”. The instructions say “Enter taxes and licenses paid or incurred in the trade or business activities of the corporation, unless they are reflected elsewhere on the return.” The list of taxes that stay off the line includes “Federal income taxes (except for the portion of built-in gains tax allocable to ordinary income) or taxes reported elsewhere on the return.” and “Taxes allocable to a rental activity.” It also includes “Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of property”. Another entry reads “Creditable foreign taxes under sections 901 and 903.” Sorting taxes between this line and the separately stated items is the same question a sole proprietor faces on Schedule C line 23.
Where the number comes from
Line 7 comes from the corporation’s officer pay records and, where required, Form 1125-E. Line 8 comes from payroll records for employees who are not officers. Lines 9, 10, 11 and 12 come from repair invoices, the year’s account of worthless trade receivables, lease and rent payments, and tax and license payments. Payroll tax filings are a separate form; see Form 941.
Where it goes next
These lines feed the total on line 21, whose caption is “Total deductions. Add lines 7 through 20”. Line 22 then subtracts that total from line 6. The form’s caption for the section is “Deductions (see instructions for limitations)”. The instructions open the section with “Report only trade or business activity deductions on lines 7 through 20.” The income lines are on the lines 1a to 6 page, and interest, depreciation and the remaining deductions are on the lines 13 to 22 page.
Edition and line numbers
This page reads the 2025 Form 1120-S and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. The form’s title line reads “U.S. Income Tax Return for an S Corporation” and the period line reads “For calendar year 2025 or tax year beginning”. Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its lines differently.
Common mistakes
- Treating payments to an officer as something other than wages. The instructions say “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”
- Deducting rent for an owner’s home. The instructions say “Don’t deduct rent for a dwelling unit occupied by any shareholder for personal use.”
- Deducting an improvement as a repair. The instructions say “These expenses must be capitalized and depreciated or amortized.”
Related: Form 1120-S, S corporation reasonable salary, Form 8949, Form 4562, and Schedule C line 23.
Sources
- Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation (2025): https://www.irs.gov/pub/irs-pdf/i1120s.pdf
- Form 1120-S, U.S. Income Tax Return for an S Corporation (2025): https://www.irs.gov/pub/irs-pdf/f1120s.pdf
Read from the IRS documents linked above on October 18, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.