What is a S Corporation?

As a small business owner I’m sure you’ve heard of an S corporation but do you know what it really is?

A S corporation (or “S corp”) is a corporation that “elects to pass corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes.”

The taxation of S corporations is similar to that of partnerships, while the operations are more similar to that of a C corporations, but there are some restrictions on the number and type of shareholders.

In fact, S corporations are formed as C corporations; they then elect to be treated as S corporations, assuming the requirements for such classification are met.
S corporations retain pass-through tax benefits while providing inherent liability protection to the shareholders.

Why is it called an S corporation? Although some people are of the view that the S stand for small (since S corporations cannot have more than 100 shareholders), the real reason for the name is that rules governing this entity type are contained under Subchapter S of the Internal Revenue Code.

This entity type is the first to combine the liability protection of a corporation structure with the tax benefits of a sole proprietorship or partnership.
According to the IRS, the number of S corporation returns (Forms 1120- S) surpassed the number of C corporation returns in 1997 and continued rising through 2015 (the last year for which tax statistics were reported in this area).

To learn more about S-Corps and the many benefits they offer, schedule your no cost consultation with a Certified Public Accountant (CPA), below.

User | 29/12/2021