Principles of Finance

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S corporation

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Principles of Finance

Definition

An S corporation is a type of corporation that meets specific Internal Revenue Code requirements and elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. This allows S corporations to avoid double taxation on the corporate income.

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5 Must Know Facts For Your Next Test

  1. S corporations can have up to 100 shareholders.
  2. Shareholders of an S corporation must be U.S. citizens or residents.
  3. S corporations do not pay federal income taxes at the corporate level.
  4. Profits and losses are passed through to shareholders and reported on their individual tax returns.
  5. S corporations must file Form 2553 with the IRS to obtain S corporation status.

Review Questions

  • What is one major tax advantage of an S corporation?
  • How many shareholders can an S corporation have?
  • What form must be filed with the IRS to elect S corporation status?
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