S Corporations
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
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Be a domestic corporation.
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Have only allowable shareholders.
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May be individuals, certain trusts, and estates and
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May not be partnerships, corporations or non-resident alien shareholders.
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Have no more than 100 shareholders
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Have only one class of stock
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Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
To become an S corporation, the corporation must submit Form 2553, Election by a Small Business Corporation signed by all the shareholders.
If you are an S corporation then you may be liable for…
• Income Tax Form 1120-S & Form 1120-S (Sch K-1)
• Social security and Medicare taxes and income tax withholding Form 941
• Federal unemployment (FUTA) tax Form 940
• Depositing employment taxes
• Excise Taxes
If you are an S corporation shareholder, then you may be liable for…
• Income Tax Form 1040 or 1040-SR
• Estimated tax Form 1040-ES