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Basics S Corporations

S Corporation basics

August 23, 2017
Man at office building by Chris Davis via Unsplash

Note: This is a general information “basics” article. For more information, see FAQ #4.

S Corporations Overview

An S corporation is a business corporation with a limited number of shareholders whose income is taxed through its shareholders rather than the corporation itself.

S corporations are defined in the Internal Revenue Code (26 U.S. Code § 1361) which also provides an extensive list of requirements for eligible types of shareholders. S corporations are often run by families, so there are special rules involving the treatment of related individuals.

Of note is that S corporations typically avoid corporate income tax and corporate losses can be claimed by shareholders. Rules for pass-thru of liabilities and deductions are set forth in 26 U.S. Code § 1366.

S corporations are frequently referred to as “small businesses,” however this term can be misleading. Although S corporations are “small” from an ownership standpoint, this corporate structure can support very large enterprises.

Further Reading

Photo: Chris Davis.

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