S Corporation
An S Corporation is a corporation that reports corporate income, losses, and deductions through its shareholders. Typically, the shareholder and/or owner reports corporate income on his/her personal income tax returns. An S Corporation, which is sometimes referred to as a Sub-Chapter S Corporation, is not a traditional business entity. Limited Liability Companies and C Corporations may elect to be considered an S Corporation, which can offer special tax treatment.
When the corporate entity requests an S Corporation election, it will be taxed as a pass-through entity under subchapter S of the Internal Revenue Code. This means that an S Corporation is not a separately taxable entity and the profits and losses are passed-through and reported on the personal income tax returns of the shareholders, much like a Partnership.
Qualifications Needed for S Corp Election
- Must have a tax year ending on December 31
- Must be filed as a U.S. corporation
- Can maintain only one class of stock
- Is limited to 100 shareholders or less
- Shareholders must be individuals, estates, or certain qualified trusts
- Requires each shareholder to consent in writing to the S Corporation election
- Requires each shareholder to have a US Social Security Number
- Requires each shareholder to be a US Citizen or permanent resident alien with a valid United States Social Security Number
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