What is an S Corporation?

Deciding which type of corporation is the best for your business can be a confusing and tedious task. Two types of corporations are recognized by the Internal Revenue Service for the purpose of federal income tax imposition: C corporations and S corporations. An S corporation is a special structure of business ownership by which the business is able to avoid double taxation because it is not required to pay corporate income tax on the profits of the company. All profits/losses are passed on directly to the shareholders of the company. The shareholders file individual tax returns and pay income tax on whatever share of profits they receive from the business. If the business has more than one shareholder the business must file an informational tax return to provide details of the corporate income of each shareholder. This article will talk in detail about the positives and negatives of incorporating a company as an S corporation.