Overview of S Corps
An S corporation (S corp) is a business structure that passes income, losses, deductions, and credits to shareholders. S corps avoid double taxation and are for small businesses with 100 or fewer shareholders. An S corp combines limited liability with pass-through taxation. Profits and losses pass through to shareholders who pay taxes at their individual rates.
Qualifying for S Corp Status
To become an S corp, a business must:
- Be a domestic corporation
- Have only certain allowable shareholders
- Meet other IRS requirements
The benefits of an S corp include no double taxation and flow-through income to shareholders. Some income is still taxed at the entity level.
Application and Benefits
To establish S corp status, corporations must apply to the IRS and meet all qualifications. Meeting IRS qualifications is critical to achieve and maintain S corp status. The primary purpose of forming an S corp is to provide liability protection to its owners while avoiding the double taxation typically associated with traditional corporations.