What is an S Corp?

  • Tax

An S Corporation (S Corp) is a special type of business entity recognized by the Internal Revenue Service (IRS) in the United States. It allows business owners to enjoy the limited liability protection of a corporation while avoiding the double taxation that usually applies to traditional C Corporations. Instead of the company paying corporate taxes, the profits and losses “pass through” directly to the shareholders, who report them on their personal tax returns.

How an S Corp Works

To qualify as an S Corp, a business must first register as a corporation in its state and then file Form 2553 with the IRS to elect S Corp status. There are specific requirements — for example, an S Corp can have no more than 100 shareholders, all of whom must be U.S. citizens or residents. It can issue only one class of stock.

Advantages and Considerations

S Corps are popular with small business owners because they can reduce self-employment taxes and offer credibility and structure. However, they also come with strict compliance rules, additional paperwork, and limits on ownership that may not suit every business.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.