Summary

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.

Key Facts

  • An S Corporation is a special type of business entity recognized by the Internal Revenue Service (IRS) in the United States.
  • An S Corp 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, an S Corp's profits and losses pass through directly to the shareholders, who report them on their personal tax returns.
  • 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.
  • An S Corp can have no more than 100 shareholders, all of whom must be U.S. citizens or residents.
  • An S Corp can issue only one class of stock.
  • S Corps are popular with small business owners because they can reduce self-employment taxes and offer credibility and structure.
  • S Corps come with strict compliance rules, additional paperwork, and limits on ownership that may not suit every business.

Frequently Asked Questions

What is an S Corp?

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.

How does an S Corp work?

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. 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.

What are the requirements to be an S Corp?

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.

What are the advantages and considerations of an S Corp?

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.

Related Entities

Companies
Internal Revenue Service
Products
Form 2553
Locations
United States

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.

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