S Corp
What Is S Corp?
An S corporation (S Corp) is a tax designation that allows a qualifying corporation or LLC to pass business income directly to owners without paying corporate income tax.
This structure helps avoid double taxation.
Why It Matters
S Corps allow business profits to pass through to owners’ personal tax returns, potentially reducing overall tax burdens for small business owners.
How S Corp Works
A business must elect S Corp status with the IRS and meet eligibility requirements.
Profits pass through to shareholders and are taxed at individual income tax rates.
Example
A small business with two owners elects S Corp status so that business income passes through to the owners’ personal tax returns.
S Corp vs C Corp
- S Corps use pass-through taxation.
- C Corps are taxed separately from owners.
FAQs About S Corps
Who can form an S Corp?
Eligible corporations or LLCs that meet IRS requirements.
Do S Corps avoid corporate tax?
Yes. Income is generally taxed at the owner level.
Are there ownership limits?
Yes. S Corps have restrictions on number and type of shareholders.
Related Terms
