What Is An S corporation

According to the text, S corporations are a type of business structure that allows for the pass-through of taxable income, losses, deductions, and credits to shareholders. This is in contrast to C corporations, where the owners/shareholders are taxed separately and profits are taxed on both a business and personal level. S corporation stock is freely transferable, but there are IRS ownership restrictions that must be met. Additionally, S corporations have an annual tax of either 1.5% of net income or $800, with exceptions for newly incorporated or qualified corporations. Unlike C corporations, S corporations do not file an income tax return and instead file an information return.

An S corporation is a specific type of corporation that allows business income, deductions, and credits to flow directly through to the shareholders for federal tax purposes. This means that the corporation itself is not taxed. Instead, shareholders report the income and loss on their individual tax returns. S corporations are named after subsection S of the Internal Revenue Code, where the tax rules specific to this type of corporation are detailed.

S corporations have certain limitations, such as the number and type of shareholders, and therefore may not be suitable for all businesses. It's essential to consult with a tax professional or legal advisor to determine if this structure is the best fit for your specific business needs.

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