S corporations pass income, losses, deductions, and credits to owners. To qualify as an S-Corp, a business must meet requirements set by the IRS. S-Corps pay no income tax. Shareholders report income and losses on individual returns. The business sends shareholders a notice of their share based on the percentage of ownership. An S-Corp is either a domestic corporation or an eligible domestic entity that’s eligible to be treated as a corporation.
Advantages and Disadvantages
Know the pros and cons when considering S corps. Tax benefits and the ability to raise funds are advantages. However, S corps have ownership structure restrictions. Talk to an advisor to determine if an S corporation or LLC fits your business.
Frequently Asked Questions
Why is S corp called S corp?
The designation "S" refers to a subchapter of the Internal Revenue Code that permits this form of pass-through taxation.
What does C in C corp stand for?
The "C" in C corp stands for "corporation," specifically referring to the tax designation found under subchapter C of the Internal Revenue Code, where such corporations are taxed separately from their owners.