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What is a S Corporation? |
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BUSINESS SERVICES |
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What is a S Corporation? |
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An S Corporation is a small business Corporation whose shareholders have made a choice to be taxed under personal income tax law rather than Corporation law.
An S Corporation is not treated as a separate taxable entitiy like a C Corporation. The S is for Chapter S of the IRS code. No Corporate income tax is paid to the IRS for an S Corporation. For tax purposes net income is "passed through" the S Corporation to the personal income tax of the shareholders. With an S Corporation double taxation (paying both corporate and personal taxes) can be avoided while retaining all the legal protections of a C Corporation. In addition, federal law allows a nontaxable Employee Stock Ownership Plan to hold stock in an S Corporation. This gives shareholders a way to defer some of their taxes. No tax is paid on these stocks until they are withdrawn from the Plan. All corporations start out as a C Corporation. In order to be treated as an S Corporation a form must be filed with the Federal government within 75 days of incorporation of the C Corporation, or within 75 days of a new year. S Corporation eligibility requirements include:
45 states accept a Federal S Corporation election if the Corporation has filed a valid IRS S Corporation Election form. In Arkansas, New Jersey, New York, Ohio, and Wisconsin, a separate state S Corporation election must be made. |
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