Series 79: S Corporations

S Corporations

An S corporation, or S corp, is not, strictly speaking, an entity type. Rather, an S corporation is a corporation that has filed a notice with the IRS electing to be taxed under Subchapter S of the Internal Revenue Code. This election subjects an S corporation to pass-through taxation. Pass-through tax status means that S corporations are not subject to entity-level tax, and therefore they avoid double taxation.

S corporations are taxed like partnerships: the corporation passes all income, losses, deductions and credits on to its shareholders, who pay tax on their share of the corporation’s profits at their individual income tax rates. Note that an S corporation does not always offer a tax advantage to shareholders, because dividends paid by C corporations are taxed at a special rate, and that rate is often lower t