2023 Wisconsin Schedule 5S-ET Instructions 

   Purpose of Schedule                                                                                              
  An electing tax-option (S) corporation or limited liability company treated as a tax-option (S) corporation uses 
  Schedule 5S-ET to compute the entity level tax on items that would have been reportable by the shareholders, 
  had the election not been made. For the taxable year in which the election is made, shareholders  do not include 
  in their Wisconsin adjusted gross income their proportionate share of all items of income, gain, loss, or deduction 
  of the tax-option (S) corporation. 
  The election to pay tax at the entity level is made the day Form 5S is filed by checking box seven in Part A of 
  Form  5S, Wisconsin  Tax-Option  (S)  Corporation  Franchise  or  Income  Tax  Return.  The  electing  tax-option 
  (S) corporation must have consent from shareholders who hold an aggregate of more than 50 percent of the 
  shares of the tax-option (S) corporation on the day of the election, according to section 71.365(4m)(a), Wis. 
  Stats. The election  may be revoked  by filing an amended Form 5S on or before  the extended due date. 
  Shareholders who hold an aggregate of more than 50 percent of the shares of the tax-option (S) corporation 
  must consent to the revocation. 
 
   Result of Making the  Election                                                                                                                                                                                         
  Income/Gains 

  • Net income reportable to Wisconsin is taxed to the electing tax-option (S) corporation and is not taxable to 
    the shareholders.  
    Note: Except for the modifications listed under sec. 71.365(4m)(d), Wis. Stats., the net income of an electing 
    tax-option (S) corporation is computed under sec. 71.34(1k), Wis. Stats.  
  • The net income reportable to Wisconsin is taxed at 7.9%. There is no special capital gains tax rate. 
  • All income of Wisconsin resident shareholders must be reported by the electing tax-option (S) corporation. 
  • Income  of  nonresident  shareholders  must  be  reported  by  the  electing  tax-option (S)  corporation  if  the 
    income is attributable to Wisconsin. 
  • Shareholders subtract from their federal adjusted gross income the income reported by the electing tax- 
    option (S) corporation. 
  Deductions/Losses 
  • Losses and deductions do not pass through to shareholders. 
  • Net operating or business losses may not be carried forward and used to offset income reportable by the 
    electing tax-option (S) corporation. 
  • An  electing  tax-option  (S)  corporation  may  claim  the  30-percent  and/or  60-percent  long-term  capital  gain 
    exclusion under sec. 71.05(6)(b)9.  or9m, Wis. Stats. 
  • The maximum capital loss deduction that may be claimed by the electing tax-option (S) corporation is $3,000. 
  • Unused capital losses may be carried forward by the electing tax-option (S) corporation. 
  • Passive activity loss limitations under section 469 of the Internal Revenue Code (IRC) are determined at the 
    electing tax-option (S) corporation level, and the electing tax-option (S) corporation  must determine  how each 
    shareholder would characterize each item of income or loss (passive or non-passive) as if the election was not 
    made. 
  • Suspended passive activity losses may be carried forward by the electing tax-option (S) corporation. 
  • The  charitable  contribution  deduction  is  not  allowed  to  the  electing  tax-option  (S)  corporation,  nor  the 
    shareholders. 
  • The  section 179  expense  deduction  limitation  and  phase-out  are  applied  to  the  electing  tax-option  (S) 
    corporation. 
  • The  amount  of  investment  interest  expense  allowed  as  a  deduction  may  not  exceed  the  net  investment 
    income of the electing tax-option (S) corporation for the taxable year as provided in sec. 163(d),  IRC. 

 IC-110 (R. 03-24) 

                                        2023 Schedule 5S-ET Instructions 
 
 Tax Credits, Schedule 5K-1 Reporting, and Shareholder’s Basis in Stock and Indebtedness 
 • Tax credits, except the credit for net tax paid by the entity to another state, may not be claimed  by the electing 
   tax-option (S) corporation and are passed through to the  shareholders. 
 • The  electing tax-option  (S)  corporation  computes the  manufacturing and agriculture credit based on its 
   activities and passes it through to the shareholders. The shareholders  complete Schedule MA-M or MA-A, but 
   a shareholder may only use the credit  to offset tax  liability resulting from the shareholder’s prorated share of 
   taxable income from the tax-option (S) corporation for a year in which the election is not  made. 
 • The electing tax-option (S) corporation provides Schedule 5K-1 to each shareholder as if the election was 
   not made. Exceptions: 
   o The electing tax-option (S) corporation must check box 3 of Part B. 
   o The credit for tax paid to another state is not entered on the shareholder’s Schedule 5K-1 because the 
     shareholders cannot claim the credit. 
   o The  credit  for  pass-through  withholding  will  generally be  zero  because  the  electing  tax-option  (S) 
     corporation  is  exempt  from  pass-through  withholding.  For  more  information  regarding  pass-through 
     withholding, see the instructions for Form PW-1. 
   o An electing tax-option (S) corporation must provide a supplemental statement with each shareholder’s 
     Schedule 5K-1 detailing the items of income, gain, loss, deduction, and tax paid as a result of the election 
     that are included on the electing tax-option (S) corporation’s Schedule 5S-ET. 
   o If  a  nonelecting  tax-option  (S)  corporation receives  a  Schedule  3K-1  from  ownership  in  a partnership 
     that made the entity-level tax election under sec. 71.21(6)(a), Wis. Stats., the nonelecting tax-option (S) 
     corporation must provide a supplemental statement with each shareholder’s  Schedule  5K-1  detailing the 
     items of income, gain, loss, and deduction that are included on the electing partnership’s Schedule 3- ET. 
 • The adjusted basis of a shareholder in the stock and indebtedness of an electing tax-option (S) corporation is 
   determined as if the election was not made. 
 
  When and Where to  File                                                                                       
 The election to be taxed at the entity level must be made annually on or before the extended due date of the 
 Wisconsin Form 5S. The election is made on the day Form 5S is filed. Generally, a tax-option (S) corporation 
 must file its franchise or income tax return by the 15th day of the 3rd month following the  close of  its taxable 
 year, however: 
 • Any extension allowed by the Internal Revenue Service (IRS) for filing the federal return automatically extends 
   the Wisconsin due date to 30 days after the federal extended due  date. 
 • Wisconsin law also provides  an  automatic extension of 7  months or  until the original due date of the 
   corporation’s corresponding federal return, whichever is later. 
 • If a tax-option (S) corporation would like to make the election and the current year's tax return will not be 
   available  in time, contact the  department’s  Customer  Service  Bureau  at  (608)  266-2772  or 
   DORAuditPassThrough@wisconsin.gov. 
 
  Columns (b), (c), (d), and  (e)                                                                               
 Column (b) – Residents: Enter the total amount from all Schedules 5K-1, column (d), for Wisconsin resident 
 shareholders. All income that would have been reportable by Wisconsin resident shareholders, if the election 
 was not made, is taxable to the entity. 
 Column (c)  –  Nonresidents:     Enter  the total amount  from all Schedules 5K-1, column (e), for nonresident 
 shareholders. 

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                                       2023 Schedule 5S-ET Instructions 
 
 All Wisconsin-sourced income that would have been  reportable by nonresident shareholders, if the election was 
 not made, is taxable to the entity. Income of nonresident individuals, estates, and trusts is sourced to Wisconsin 
 according to secs. 71.04 and 71.362, Wis. Stats., which  provides: 
 • Tax-option (S) corporation that is engaged in business only in Wisconsin: All items of income, loss or deduction 
   of nonresident individuals, estates, and trusts derived from a tax-option (S) corporation that is not required to 
   use the apportionment method is sourced to Wisconsin. 
 • Tax-option (S) corporation that is engaged in business both in and outside Wisconsin: All items of income, loss 
   or deduction of nonresident individuals, estates, and trusts  derived from a tax-option  (S) corporation that is 
   required  to use the apportionment method, is sourced  to Wisconsin based on the apportionment  method 
   described in secs. 71.04(4),(10), or(11), Wis.  Stats. 
 • Losses and other items of a tax-option (S) corporation deductible  by such nonresident shareholders  is limited 
   to their proportionate share of the Wisconsin loss or other item. 
 • All intangible income of a tax-option (S) corporation passed through to shareholders is business income that 
   follows the situs of the business (i.e. the apportionment method is generally used to determine the source of 
   intangible income for nonresident shareholders). 
 • All income realized from the sale or purchase and subsequent sale or redemption of lottery prizes are sourced 
   to Wisconsin if the winning tickets were originally purchased in Wisconsin. 
 Column (d) - Entity-Level Adjustments: Enter any amount for which the item of income, gain, loss or deduction 
 must be adjusted to arrive at the amount attributable or taxable to the entity. A positive adjustment will increase 
 the amount and a negative adjustment will decrease it. Include a statement  describing adjustments made in 
 column (d). 
 Except for the modifications listed under sec. 71.365(4m)(d), Wis. Stats., the net income or loss of the tax- option 
 (S) corporation is computed under sec. 71.34(1k), Wis. Stats., which provides, in part: 
 • The  taxable  income  of  an  S  corporation  shall  be  computed  in  the  same  manner  as  in  the  case  of  an 
   individual under section 1363(b), IRC. 
 • The deductions for personal exemptions provided in section 151, IRC, are not  allowed. 
 • The deductions for charitable contributions provided in section 170, IRC, are not allowed. 
 • The passive activity loss limitations in section 469, IRC,  apply. 
   o Passive activity loss limitations are determined at the electing tax-option (S) corporation level, and the 
     electing tax-option (S) corporation must determine how each shareholder would characterize each item 
     of income or loss (passive or non-passive) as if the election was not made. 
   o The electing tax-option (S) corporation must complete a pro forma federal Form 8582,           Passive Activity 
     Loss Limitations, for Wisconsin in order to determine the allowable passive activity loss the electing tax- 
     option (S) corporation may claim. 
   o Passive losses may not be passed through to the shareholders. 
   o Suspended passive losses may be carried forward by the electing tax-option (S) corporation. 
 Column (e) – Total: For each line, enter the sum of columns (b), (c), and (d). 
 
  Specific Line Instructions – Income                                                                                                                                                                                      
 Lines 2 & 3 - Net rental real estate and other net rental income or  loss: 
 • Passive activity loss limitations are determined at the electing tax-option (S) corporation level. A maximum 
   $25,000 of losses from rental real estate activities applies as provided in section 469(i), IRC. 
 • The electing tax-option (S) corporation must determine how each shareholder would characterize each item 
   of income or loss (passive or non-passive) as if the election was not made. 

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                                            2023 Schedule 5S-ET Instructions 
 
 • The electing tax-option (S) corporation must complete a pro forma federal Form 8582,  Passive Activity Loss 
   Limitations, for Wisconsin in order to determine the allowable passive activity losses the electing tax-option 
   (S) corporation may claim and enter any adjustment necessary in column (d). 
 • Suspended passive activity losses may be carried forward by the electing tax-option (S) corporation. 
 Lines 7 through 9 – Gains and losses: 
 • An  electing  tax-option  (S)  corporation  may  claim  the  30-percent  and/or  60-percent  long-term  capital  gain 
   exclusion under sec. 71.05(6)(b)9.  or9m , Wis. Stats. Report the exclusion in column (d). 
 • The maximum capital loss deduction that may be claimed by the electing tax-option (S) corporation is 
   $3,000. Column (e), lines 7, 8, or 9 may need to be adjusted so that the total loss deducted by the entity is 
   limited to $3,000. 
 • Capital losses, including suspended capital losses, may not pass through to shareholders. 
 • Unused capital losses  may be carried  forward by the electing tax-option (S) corporation. A supplemental 
   schedule may be used to keep track of the capital loss carryforward amounts and  included  as  an attachment 
   when submitting the return. 

 Example 1: 
 • A tax-option (S) corporation that is 100% owned by a Wisconsin resident individual makes the election to pay 
   tax at the entity level. 
 • The shareholder’s Wisconsin Schedule 5K-1 shows: 
 
                                      Income/(loss) Item                                       Amount 
 Net short-term capital gain (loss)                                                            $0 
 Net long-term capital gain (loss)                                                             $100,000 
 Net section 1231 gain (loss)                                                                  $0 
 
 • The tax-option (S) corporation has a net long-term capital gain of $100,000 and may claim the 30% long- 
   term capital gain exclusion of $30,000 ($100,000 * 30%) 
 • The electing tax-option (S) corporation’s Schedule 5S-ET should show: 
 
              Column (a)                      Column (b)         Column (c)       Column (d)   Column (e) 
 Line 7: Net short-term capital gain (loss)                                                    
 Line 8: Net long-term capital gain (loss)    $100,000                            (30,000)        $70,000 
 Line 9: Net section 1231 gain (loss)                                                          
 
 Example 2: 
 • A tax-option (S) corporation that is 100% owned by a Wisconsin resident individual makes the election to pay 
   tax at the entity level. 
 • The shareholder’s Wisconsin Schedule 5K-1 shows: 
 
                                      Income/(loss) Item                                       Amount 
 Net short-term capital gain (loss)                                                            ($15,000) 
 Net long-term capital gain (loss)                                                             ($5,000) 
 Net section 1231 gain (loss)                                                                  $16,000 

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                                            2023 Schedule 5S-ET Instructions 
 
 • Assume there aren’t any prior year unrecaptured section 1231 losses, and the section 1231 gain is treated 
   as a capital gain (not ordinary income). 
 • The tax-option (S) corporation has a net capital loss of $4,000 ($16,000 - $15,000 - $5,000) 
 • The electing tax-option (S) corporation’s Schedule 5S-ET should show: 
 
                Column (a)                  Column (b)      Column (c)             Column (d)    Column (e) 
 Line 7: Net short-term capital gain (loss) ($15,000)                               $12,000      ($3,000) 
 Line 8: Net long-term capital gain (loss)  ($5,000)                                $5,000       
 Line 9: Net section 1231 gain (loss)       $16,000                                 ($16,000)    
 
 Note The unused capital loss of $1,000 may be carried forward by the electing tax-option (S) corporation. 
 
 Example 3: 
 • A tax-option (S) corporation that is 100% owned by a Wisconsin resident individual makes the election to pay 
   tax at the entity level. 
 • The shareholder’s Wisconsin Schedule 5K-1 shows: 
 
                                      Income/(loss) Item                                         Amount 
 Net short-term capital gain (loss)                                                              ($18,000) 
 Net long-term capital gain (loss)                                                               ($108,000) 
 Net section 1231 gain (loss)                                                                    ($20,000) 
 
 • Assume the section 1231 loss is treated as an ordinary loss (not a capital loss) 
 • The tax-option (S) corporation has a net capital loss of $126,000 (-$18,000 -  $108,000) 
 • The electing tax-option (S) corporation’s Schedule 5S-ET should show: 
 
                Column (a)                  Column (b)      Column (c)             Column (d)    Column (e) 
 Line 7: Net short-term capital gain (loss) ($18,000)                               $15,000      ($3,000) 
 Line 8: Net long-term capital gain (loss)  ($108,000)                              $108,000     
 Line 9: Net section 1231 gain (loss)       ($20,000)                                            ($20,000) 
 
 Note The unused capital loss of $123,000 may be carried forward by the electing tax-option (S) corporation. 
 
 Line 10 - Other income or loss: If more than three lines are necessary, submit a supplemental statement with 
 Schedule 5S-ET identifying each item of income or loss, and enter the total income or loss from the supplemental 
 statement on line 10a. 
 Line 11 – Total income or loss: Add lines 1 through 10c for columns (b), (c), (d), and (e). 

  Specific Line Instructions –  Deductions                                                                                                                                                                         
 Line 12 – Section 179 deduction: 
 The section 179, IRC, deduction limitation and phase-out apply to the electing tax-option (S) corporation. 

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                                      2023 Schedule 5S-ET Instructions 
 
 Line 13 – Investment interest expense 
 • The amount of investment interest expense allowed as a deduction may not exceed the net investment income 
   of the electing tax-option (S) corporation for the taxable year as provided in section 163(d),  IRC. 
 • The electing tax-option (S) corporation must complete a pro forma federal Form 4952,     Investment Interest 
   Expense Deduction, for Wisconsin in order to determine the allowable investment interest expense the electing 
   tax-option (S) corporation may claim and enter any adjustment necessary in column  (d). 
 • Suspended interest expenses may be carried forward by the electing tax-option (S) corporation. 
 Line 15 – Other deductions:  If more than three lines are necessary, submit a supplemental statement with 
 Schedule 5S-ET identifying each deduction item, and enter the total deductions from the supplemental statement 
 on line 15a. 
 Line 16 – Total deductions: Add lines 12 through 15c for columns (b), (c), (d), and (e). 
 Line 17 – Taxable income or loss: Subtract line 16 from line 11. 
 Line 18 – Entity level gross tax:    Multiply line 17 by 7.9% (0.079). If line 17, is less than zero fill in 0. This is 
 the electing tax-option (S) corporation’s gross tax. 
 Line 19 – Credit for net tax paid to another state 
 • Enter the amount from line 22 of Schedule ET-OS and submit Schedule ET-OS with the electing tax-option 
   (S) corporation’s Form 5S, Wisconsin Tax-Option (S) Corporation Franchise or Income Tax Return. 
 • The tax-option (S) corporation may only claim a credit  for: 
   o Corporate net income or franchise taxes paid to another state on the same income that is taxable to 
     Wisconsin. 
   o Individual  income  tax  paid  on  a  composite  return  on  behalf  of  Wisconsin  resident  shareholders  to 
     another state on the same income that is taxable to Wisconsin. 
 • The electing tax-option (S) corporation may not pass the credit through to shareholders. 
 • Shareholders of the electing tax-option (S) corporation may not claim a credit for taxes paid to another state on 
   income of the tax-option (S) corporation, since the shareholders do not pay Wisconsin income tax on the electing tax- 
   option (S) corporation’s income. 
 • See additional limitations in sec. 71.07(7)(b)3., Wis. Stats. 
 Line 20 – Net tax: Subtract line 19 from line 18. If line 19 is larger than line 18, fill in 0. This is the electing tax- 
 option (S) corporation’s entity-level net tax. Enter the amount from line 20 on Form 5S, page 1, line 7. 
 
  Additional Information, Assistance, and Forms                                                                                                                                                      
 Web Resources 
 • Common questions 
 • Forms and instructions 
 • Wisconsin Tax Bulletin 
 • Wisconsin Statutes and Administrative Code 
 • Tax Publications 
 Contact Information 
 • Email your question to: DORAuditPassThrough@wisconsin.gov 
 • Call (608) 266-2772 
 • Call or visit any Department of Revenue office location 

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                                2023 Schedule 5S-ET Instructions 
 
                                Applicable Laws and Rules 
 This document provides statements or interpretations of the following laws and regulations enacted as of 
 March 21, 2024: sec. 71.365(4m), Wis. Stats. 

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