S Corporations

A S-corporation is a regular corporation that has made an election with the IRS for S status, meaning mostly that the corporation is not taxed and all profit and loss is taxed to the individual shareholders.

The S corporation, like the regular corporation, enjoys limited liability.  There is also the same ease of transfer of interests via “stock” and unlimited life of the corporation.  However, unlike a regular corporation, a S corporation is limited to 100 shareholders and can only have one “class” of shareholders.

Most importantly, the S corporation does not have the double taxation of the regular corporation.  For profit/loss and fringe benefits the S corporation is treated by the IRS much the same as a partnership.  Although the corporation files a separate tax return, form 1120S, it is not taxed.  Profit or loss is reported via a K-1 on the shareholder’s individual return.

The S corporation is a strange bird.  With the structure of a corporation and the flow through of a partnership, the S corporation has rules galore!  The IRS form 1120S should not be attempted by someone not very familiar with the rules for S corporations.  I’m not a S corporation, but they are my favorite entity.

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