| S Corporation is an elective provision that permits | | | | computing tax liability, income is "passed-through" |
| small business corporations and their shareholders | | | | to the shareholders in S corporation. Thus, the |
| to elect special income tax treatment. In S | | | | individual shareholder's tax return will report the |
| corporation status, corporate income tax can be | | | | gain or loss generated by the S corporation. |
| avoided and shareholders can claim corporate | | | | The IRS treats corporate income and corporate |
| losses. These are domestic corporations that can | | | | losses very differently when a corporation has |
| avoid double taxation by electing to be taxed | | | | elected S Corporation status. Therefore, |
| under Subchapter S of the Internal Revenue | | | | businesses that need the limited liability of a |
| Code. The S corporation cannot have more than | | | | corporation and the pass-through tax treatment |
| 75 shareholders. Only certain entities and | | | | of a partnership will elect S corporation. In general, |
| individuals are allowed to be shareholders. All S | | | | S corporation structure is preferred only when |
| Corporation shareholders must be U.S. citizens or | | | | shareholders are employed at least half of the |
| permanent resident aliens. S Corporations may | | | | time within the corporation. In other words, the |
| have only one class of stock. It is exempted | | | | shareholders intemperately manage the |
| from federal income tax other than tax on | | | | corporation's daily activities and income is |
| certain capital gains and passive income. | | | | distributed to them each year. |
| S corporation is a for-profit corporation that | | | | A financial advisor would be able to guide you in |
| begins to exist upon filing the Articles of | | | | terms of S corporation status as to whether it |
| Incorporation at the state level. S Corporation | | | | would yield a profit for your business. If you plan |
| status can be obtained by submitting IRS form | | | | to draw a very low salary and leave most of the |
| 2553 to the Internal Revenue Service. Taxation is | | | | corporate earnings in the corporation for |
| done as a partnership or sole proprietorship rather | | | | reinvestment, S corporation may not be the right |
| than as a separate entity. For purposes of | | | | choice for you. |