subchapter S-corporation

subchapter S-corporation

A corporation just like any other, but that meets certain IRS requirements and is therefore eligible for specifically described tax benefits. IRS Form 2553 must be filed in a timely manner, though. If this type of corporation is elected, there are almost no taxes to the corporation on earned income, although there are some narrow exceptions. Instead, the income is taxed directly to the shareholders according to their percentage of ownership in the corporation.In order to qualify, the corporation must have no more than 100 shareholders, none of which may be another corporation or a non-U.S.citizen.

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In a subchapter S-corporation, a tax status the owner(s) must elect through the IRS, profits (including dividends) and losses from the business pass directly to the individual shareholders in proportion to their percentage of ownership and are taxed at the personal rate.