What is an S Corporation and how does it work?

What is an S Corporation and how does it work?

An S Corporation is a special type of corporation that meets specific Internal Revenue Code requirements. It allows income, deductions, and tax credits to pass through to shareholders, avoiding double taxation.

What are the benefits of choosing an S Corp over a regular corporation?

The main benefits include pass-through taxation, limited liability protection for shareholders, and potential tax savings on self-employment taxes.

Are there any restrictions on who can be a shareholder in an S Corp?

Yes, S Corporations can have a maximum of 100 shareholders, and all must be U.S. citizens or residents. Certain entities, like other corporations or partnerships, cannot be shareholders.

How do I elect S Corp status for my business?

To elect S Corp status, you need to file Form 2553 with the IRS, signed by all shareholders, and meet the eligibility requirements.

What happens if I don't meet the requirements for S Corp status?

If you don't meet the requirements, your corporation will be taxed as a regular C Corporation, which means it will face double taxation on its income.